Global uncertainty driving gold prices higher despite bubble fears

Goldbugs have a spring in their step these days. In the third quarter of this year, gold was the second-best performing major financial asset after silver, according to Deutsche Bank data. Last month, the price of bullion hit a record high 13 times and currently stands just above US$4,000 per troy ounce after surging 54 per cent this year, the biggest gain since 1979.

The past several years have been a boon to the yellow metal, whose role as a store of wealth is amplified during times of economic and political uncertainty. Gold has benefited from the post-pandemic surge in inflation and the recent decline in interest rates, which makes it more attractive to hold relative to income-producing assets. Moreover, bullion rises when the US dollar depreciates since it is priced in dollars and competes with cash.

The price of gold has soared around 120 per cent in the past two years. Although the precious metal generates no cash flow – veteran investor Warren Buffett famously dismissed gold as being “neither of much use nor procreative” – its hedging properties and liquidity are prized by investors when mainstream assets come under severe strain.