Gold Is at Record Highs. Can This Rally Last?

Gold is shining especially bright right now.

The precious metal keeps setting new price records, surging past $3,800 an ounce on Monday for the first time. That momentum carried into midweek: gold prices hit a fresh record high after the U.S. government shut down for the first time in nearly seven years.

The price has climbed an impressive 45% this year, extending a strong run from last year. In fact, 2025 is shaping up to be gold’s best year since the 1979 melt-up, when an energy crisis triggered an inflationary shock that rattled the global economy.

To understand what’s driving the rally — and whether it can last, The Darden Report spoke with Rodney Sullivan, executive director of the Mayo Center for Asset Management at UVA’s Darden School of Business.

Rodney Sullivan, Executive Director for the Mayo Center of Asset Management.

Q: Why is gold doing so well?

A: Gold has indeed had a strong run, almost doubling over the past two years, from $2,000 per ounce at the beginning of 2024, to nearly $4,000. Russia’s invasion of Ukraine in 2022 was an initial key catalyst. In response, the U.S. and its allies froze the international reserves of Russia’s central bank. That action convinced the central banks of countries with autocratic governments to increase their gold purchases as a safeguard for their sovereign wealth.

More recently, President Donald Trump’s attempts to reorder America’s relationships with its major trading partners have rattled governments, adding more fuel to the gold rally.

Similarly, President Trump’s pressure on the Federal Reserve to lower interest rates has compromised Fed independence — another bullish signal for gold as investors seek the precious metal as a hedge against potential inflation.

Also, China’s housing bubble has been bursting over the past few years, leading to an adverse wealth effect on Chinese savers, who have been buying gold as an alternative safe-haven asset.

Finally, the rising standard of living in India has increased wealth, further boosting demand for the precious metal.

Q: Can gold’s bull run continue?

As long as global central banks continue to build their gold reserves, the bullish trend could continue. As of September, central banks collectively held approximately 27% of total global reserves in gold. For the first time since 1996, gold now represents a bigger share of central banks’ reserves than Treasuries, making it the second-largest global reserve asset after the U.S. dollar.

Q: Should a prudent, diversified investor consider owning gold?

A: Although gold has been used for thousands of years as a unit of exchange and store of value, most investor portfolios hold a mix of only stocks and bonds. Research shows that a modest allocation to gold can strengthen a portfolio by adding diversification. This is because gold typically provides positive returns during periods of financial turmoil, when riskier assets such as stocks are declining, and during inflationary environments, when typically safer assets such as nominal bonds suffer. So, gold may help buffer portfolios during times of increased economic and market uncertainty, as has been the case in recent years.

Q: Is gold a volatile holding traditionally?

A: Gold is indeed a volatile asset class, experiencing roughly the same volatility as stocks historically. It’s also worth noting that gold does not generate cash flows like stocks and bonds, and gold’s real returns — that is, adjusted for inflation — over centuries have been close to zero. So, yes — gold is volatile, and doesn’t compound over the long term in the same way that stocks and bonds do.

Q: How should investors approach gold during a rally?

A: After such a strong run, investors may be cautious about buying gold.  Still, with today’s geopolitical and economic uncertainty, a small allocation to an investment portfolio could be sensible. Even a small slice of gold, just a few percent — together with the relative safety of U.S. Treasury bonds (both nominal and inflation protected such as Treasury Inflation-Protected Securities, or TIPS)— may help diversify and protect an overall portfolio during market turmoil.