What drives gold prices? Four trends investors should know
Gold returned 65% in 2025, its strongest annual gain since 1979, and reached an all-time high of $5,596/oz in January 2026.1
It's tempting to view those milestones as the primary story behind gold's recent performance. But the forces influencing gold today began building years before they became apparent in the market.
Trade tensions, the pandemic, geopolitical fragmentation, and concerns about currency concentration reshaped how investors and central banks viewed gold. What appeared to be a series of isolated events ultimately reflected a broader change in demand that continues to influence the market today.
The usual suspects behind gold’s performance
A 65% annual return never happens by accident. But you can’t attribute gold’s recent run to one specific reason, either. Understanding these four primary drivers may support gold's strategic role in portfolios more than any single headline, rally, or market milestone.
1. Central banks are buying gold—and a lot of it
In 2024, gold surpassed the euro to become the number two reserve asset held by the official sector worldwide—a telling statement from the world's most sophisticated institutions about gold's role.2
Central banks continued to be significant buyers in 2025, purchasing 850 tonnes of gold.3 Demand remains strong in 2026. Central banks purchased a net 289 tonnes in the second quarter, up 62% from a year earlier and the strongest second quarter on record. While first-half purchases this year total 345 tonnes, below the pace of recent years, history suggests a slower start does not necessarily mean weaker full-year demand.4 In 2022, central banks bought just 241 tonnes in the first half before accelerating purchases in the second half and ending the year with 1,080 tonnes of net buying.5
2. The US dollar's direction supports gold
Gold is priced in US dollars (USD). When the dollar weakens, gold becomes more affordable for international buyers, which can support demand. In 2025, the dollar fell 9.4% relative to major currencies—the 9th worst drop since 19716—providing a tailwind for gold. And with fiscal pressures and de-dollarization weighing on the dollar's long-term trajectory, that tailwind may continue to blow.
3. Geopolitical instability is a consistent backdrop
Ongoing conflicts and policy uncertainty have buoyed demand for safe haven assets.* US sanctions policy has helped accelerate the move outside the dollar system (lowest level since 1994 at 41%) and into gold as an alternative (highest level since 1994 at 28%).7
4. Stocks and bonds are moving together
One of gold's potential portfolio benefits is diversification. But diversification only works if the asset doesn't follow everything else. With the correlation between stocks and bonds elevated relative to 30-year norms,8 investors are actively seeking reliable diversifiers. Gold's counter-cyclical demand profile—the fact that its price drivers don't hinge on industrial growth or corporate earnings—makes it an option worth considering.
Gold’s best work often happens in the worst markets
During major US equity market drawdowns—for example, the peak-to-trough declines of 15% or greater between 1987 and 2025—gold historically averaged a gain of roughly 6%.9 The traditional 60/40 portfolio, over those same windows, averaged a 11% decline. Gold generated positive returns in six of the 11 such episodes identified. In the two negative instances, it still outperformed the 60/40 portfolio.10
Sure, numbers can be useful, but specific moments are more memorable. Consider:
- March 2020: The COVID-19 shock sent equities into freefall and triggered a scramble for liquidity across asset classes. Gold wasn't immune, dropping alongside risk assets during the initial selloff. But the decline was relatively modest: at its lowest point, gold fell only 4%, compared to the 60/40 portfolio’s 21% drop over the same stretch.11 While gold didn't escape the initial storm, it endured considerably less damage.
- Or March 2022: Russia's invasion of Ukraine triggered broad dollar strength and a sharp rise in energy prices as markets repriced geopolitical risk. It was also a year when the traditional 60/40 portfolio—the long-held standard for diversification—tumbled as stocks and bonds declined in unison. Gold did its job, outperforming the 60/40 by roughly 16% over that period.12
Looking beyond short-term market moves
Like any asset, gold's price can fluctuate as investor sentiment, economic expectations, and policy outlooks evolve. Periods of strength may be followed by periods of consolidation.
For investors, the more important question is often not where gold goes next, but what tends to influence demand over time. Central bank purchases, geopolitical developments, currency trends, and diversification considerations have each played a role in shaping the market in recent years. While the relative importance of these drivers may change over time, they can provide a useful framework for understanding gold's behavior across different market environments.
If you’re considering adding gold to your portfolio, these longer-term drivers may offer more insight into gold's role in a portfolio than any individual price milestone. Because gold's story is about much more than where it trades at a given moment. It's about the forces that continue to influence its role within the global financial system and, potentially, within diversified portfolios.
Gold ETFs can provide a convenient way to incorporate gold into a diversified portfolio.
Gold ETFs: An easier way to gain exposure to gold
Adding gold’s resilience and staying power to your portfolio doesn’t have to be complicated. With gold ETFs, you can tap into gold exposure in a single trade.