Gold prices have surged to new heights, currently trading near US$3,825 per ounce, up ~40% this year. Gold’s current rally makes it one of the strongest-performing assets of the year, far outpacing equities like the S&P 500, which has gained about 14% over the same period. With such a remarkable run, the natural question - and the topic of today’s Twenty-Four -  is what’s fueling this rally and what does it tell us about the broader state of the global economy?

Gold has always played a unique role in financial markets. It pays no interest, but is trusted in a way few assets are. Historically, its rallies have coincided with times of economic fragility or uncertainty: the inflation shock of the 1970s, the global financial crisis of 2007-2009, and the COVID-19 pandemic in 2020. In those and similar moments, gold has functioned less as a commodity and more as a barometer of confidence in the global financial system.

The role gold plays today

While today’s backdrop bears similarities to past gold price rallies, today’s prices reflect a convergence of forces: rising global debt levels, a weaker U.S. dollar, trade policy uncertainty, questions about the sustainability of fiscal policy, and an unusual dynamic where gold prices continue to rise despite higher Treasury yields. These factors together have encouraged both private investors and central banks to lean more heavily towards gold as a strategic reserve.

One of the most striking developments is that for the first time since 1996, gold represents a larger share of central banks’ reserves than U.S. Treasuries*. Data from the International Monetary Fund’s COFER database and the World Gold Council show that Treasuries, as a share of reserves, have steadily declined in recent years. Several forces are at play. Central banks in emerging markets, particularly China and Russia, have been motivated to diversify away from Treasuries in response to sanctions risk and geopolitical fragmentation. For others, it’s about insulation: in a world where fiscal trajectories look more uncertain, holding gold is a way to hedge against a myriad of possibilities. This shift does not signal an abandonment of the U.S. dollar, which remains the dominant reserve currency, but it does mark a subtle rebalancing in how countries manage their financial security.

A softer dollar and bond market jitters

Another catalyst supporting gold is the U.S. dollar. The Dollar Index, which tracks the currency against its major peers, is down around 10% this year.  A weaker U.S. dollar tends to support gold, which is priced in U.S. dollars and becomes more affordable for international buyers. Today the U.S. faces a persistent deficit, rising interest payments now exceeding a trillion dollars annually, and uncertainty surrounding trade and tariff policy.

Bond markets add another dimension. Yields on longer-dated Treasuries remain elevated, a level that would normally deter gold buying since as a non-interest bearing asset, investors could earn higher returns by buying Treasuries. Yet, the demand for gold keeps rising. Recent treasury auctions have shown softer demand, with yields clearing slightly higher than anticipated (higher rates at auctions signal softer demand, as the Treasury has to entice investors to buy U.S. debt). While not alarming in isolation, the pattern suggests investors may be more cautious about absorbing recent issuances, especially at a time when fiscal deficits show no signs of narrowing.

The takeaway is not that the U.S. dollar is in imminent decline or that Treasuries have lost their place at the core of the financial system. Both remain dominant. But gold’s ascent highlights a subtle recalibration: confidence in these traditional pillars is being re-examined. With global debt sitting at 235% of global GDP, fiscal paths increasingly uncertain, and central banks diversifying their reserves, gold’s role has seemingly shifted from a cyclical hedge to structural safeguard. Its rally is less about the metal itself and more about what it reflects.

*Central banks hold reserves - a mix of foreign currencies, government bonds (primarily U.S Treasuries and dollars), and sometimes gold, as insurance to stabilize their currencies and economies. 

Answer to the previous trivia question: October’s birthstone is the opal.

Today’s trivia question: What is the symbol for gold on the periodic table of elements?