Is Gold’s Rally Sustainable?

No, we don’t think so. Gold has benefited from concerns about economic growth, inflation, and waning confidence in the US dollar, creating a perfect storm for bullish sentiment. While these factors could continue to support gold in the short term, the current momentum appears unsustainable. Gold’s recent climb to an all-time inflation-adjusted high increases the potential for a sharp reversal if supportive conditions shift. Its price could weaken if US political uncertainty fades and investor confidence returns. Additionally, the incremental impact of further central bank gold purchases may be less significant now. Given these factors, for most investors, this is more likely a time to take profits on gold rather than initiate new allocations.

Gold’s performance this year has been exceptional, gaining 25% through April 23 close and surpassing the returns of other major asset categories. This surge has fueled bullish forecasts and renewed debate about gold’s role in portfolios. The rally has been underpinned by the Trump administration’s trade policies, which have heightened fears of a global economic slowdown, a rise in US inflation, and the potential for greater declines in the dollar. These risks have motivated investors to turn to gold as a potential hedge.

Historically, the dollar’s performance has had a negative correlation with gold. Since 2000, when the trade-weighted dollar has declined by more than 3% in a quarter, as it did in first quarter 2025, gold has averaged a 7% quarterly return. If the economic landscape deteriorates further due to protectionist policies, a decision by President Donald Trump to undermine the independence of the Federal Reserve, or some other issue, it could add pressure to the dollar and support greater flows to gold.

However, there are several key reasons why gold’s future performance could disappoint. First, gold recently touched its highest inflation-adjusted price ever, reaching $3,500 per troy ounce. This tops the real price that it reached in 1980. From these levels, gold’s momentum could be due for a reversal. History offers cautionary lessons after gold’s cyclical peaks: after surging during the stagflationary 1970s, gold lost 62% of its value in just 2.5 years when the Fed tightened policy. More recently, gold declined by 30% in 2012–13 after a rapid run-up during the Global Financial Crisis.

Second, much depends on the persistence of US political uncertainty and investor sentiment. If the Trump administration pivots toward more pro-growth policies, de-escalates tariffs, or restores confidence in the dollar, gold’s safe-haven appeal could diminish. In recent days, we have seen indications of US progress toward trade agreements with India and Japan, and signs that tariffs on China may be lowered. Moreover, recent bond market volatility appears to have prompted the Trump administration to adopt a more conciliatory approach on trade policy, likely in an effort to reassure investors and restore market stability.

Third, central bank demand may no longer provide the same structural support to bullion prices that supported gold’s rally in recent years. Central banks ramped up gold purchases around the time of Russia’s 2022 invasion of Ukraine, but buying has since stabilized at high levels. If this trend continues, ongoing central bank demand should still help underpin prices, though the market’s adjustment to higher purchase levels means the marginal impact of further buying is likely to be less significant than during the initial surge.

With gold now trading near record inflation-adjusted highs and bullish sentiment widespread, the risk of a significant pullback is elevated. History reminds us that rapid price gains can quickly reverse, especially if investor sentiment shifts or US policy uncertainty abates. For most investors, this may be an opportune moment to realize gains rather than initiate new allocations. For some investors—for instance those with significant unhedged US dollar exposures and liabilities denominated in another currency—it may be prudent to delay rebalancing gold allocations. Maintaining these positions could provide a hedge if uncertainty increases, though this approach may forgo some of the gains embedded in gold allocations within the portfolio. Ultimately, the decision to hold or trim gold should be grounded in a number of factors, including the asset owner’s currency exposures, risk tolerance, and other portfolio holdings.

Sean Duffin, Senior Investment Director, Capital Markets Research