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Gold is on the rise. The precious metal hit $3000 per ounce this month, a first. And many analysts only see it going higher – Goldman Sachs forecasts it hitting $3100 by the end of 2025.
The rush to gold, historically an economic safe haven, points to a number of economic uncertainties, from Trump tariffs and interest rate cuts to shaky geopolitics.
Whether or not you’re thinking of buying up the yellow metal yourself, following its movement offers powerful clues about our economic reality and the evolving investment environment.
Below we’ve unpacked what’s going on and offer some tips on how you might invest.
The current gold rally actually began in 2022. That’s when central banks began buying up gold at an unusually rapid clip (more than twice the average annual amount, according to JP Morgan).
Many of the biggest buyers were BRIC countries (Brazil, Russia, India, and China). They’ve been hoovering up gold as part of a long-term strategy to diversify away from the US dollar, the global reserve currency since World War II.
The gold spree was also driven by the war in Ukraine. In February 2022, the G7 froze $300 billion in Russian central bank assets. To avoid a similar fate, other central banks began swapping their US dollar reserves for gold, a physical asset that operates outside of the traditional banking system and is thus safe from sanctions.
Central bank gold purchases have hummed along at a rapid clip ever since, about 1,000 tonnes per year.
Recently the buying has even sped up: in the fourth quarter of 2024, central bank gold purchases hit 333 tonnes, according to the World Gold Council. All that demand has naturally pushed gold prices ever higher.
The gold rush is likely also driven by President Trump’s tariff policies, which have so far targeted US imports of steel and aluminum.
The prospect of a widening trade war (meaning countries respond by tacking on higher and higher tariffs for goods entering their countries) could spell price hikes for all sorts of consumer goods. In the worst case, it could even bring recession, the result of weaker sales and lower investment.
Economic downturn often generates demand for gold. At the onset of the global financial crisis in 2007 and as the stock market crashed, the price of gold soared as investors sought a safe place to weather the storm.
From 2007 to 2011 gold doubled in value. During the Covid-19 pandemic a similar trend played out, pushing the price of gold to a new high.
Though driven by different factors, analysts believe people are essentially doing the same thing now, buying gold as a hedge against the uncertainty of what’s to come.
Read more: A Beginners Guide To Hedging For Halal Investors
The price of gold is also influenced by interest rates. When interest rates are low, assets that don’t pay out interest (like gold) become more attractive.
Therefore, when investors believe that central banks are likely to cut interest rates, they’re more likely to purchase gold. And this too is currently the case, with central banks around the world slashing rates. Many analysts expect the Federal Reserve to cut rates again later this year.
The key to gold is that it’s a tangible and finite resource. And unlike paper currencies, stocks or bonds, gold’s value is not tied to the performance of a company or a government, which are subject to sudden economic crises.
And since gold must be mined from the ground at great expense, it’s relatively scarce.
That means it can’t be printed and rapidly inflated, like paper currencies. This dynamic helps it keep value.
And yet, it’s also a relatively liquid asset. Since there’s a huge global market for gold, you can usually convert it to cash with relative ease, unlike other tangible assets like real estate, which can take years to sell.
Read more about: Is buying Gold With Credit Card Halal?
Gold is usually priced in U.S. dollars. That gives it an inverse relationship with the value of the dollar.
Simply put, if the dollar weakens, gold becomes cheaper for international buyers. That increases demand for it. A weakening dollar is yet another reason analysts cite for the latest rise in gold prices.
So, you’ve heard the hype and you want to invest in gold. But how? You can always buy physical gold, like gold bars or coins.
That involves making sure you’re getting a good price and can store it securely. More convenient than that are securities tied to gold, like gold ETFs, which can be bought and sold on exchanges like stocks.
Luckily there are many gold ETFs which are considered halal because they are backed by actual, physical gold, and don’t involve derivatives or interest-based transactions.
You can check out popular gold ETFs like SPDR Gold Shares, or the Shariah Gold Tracker, listed on Bursa Malaysia and explicitly shariah-compliant.
Read more: Funds, Mutual Funds and ETFs, What are the differences?
Disclamer:
This post is for educational purposes only, and the Firm does not directly or indirectly provide these services.
