Gold has entered a prolonged bull market phase that shows little indication of abating, driven by a combination of evolving economic dynamics and shifting investor behavior. The current rally, which began in 2018, continues to build on earlier gold market cycles influenced by monetary policy, geopolitical uncertainty, and changing perceptions of risk.

Historically, gold’s value was linked to fixed quantities of US dollars until the collapse of the Bretton Woods system in 1971. Since then, gold has experienced three major bull markets: from the early 1970s to 1980, 1999 to 2011, and the ongoing phase starting in 2018. The first cycle witnessed an exceptionally sharp increase, with annualized gains averaging 46 percent over roughly eight and a half years, fueled by negative real interest rates, geopolitical tensions, and fiscal deficits. The second long-term rally saw gold financialized, lifting along with other commodities amid Chinese demand and accommodative US monetary policy, producing annualized gains of nearly 18 percent.

The current rally, averaging 19 percent annualized returns so far, has been shaped by similar macroeconomic drivers including low real interest rates and quantitative easing following the Covid-19 pandemic. However, underlying market dynamics have changed. Traditionally, a one percentage point change in US real yields would correspond with a roughly 14 percent opposite movement in gold prices. This inverse relationship broke down in early 2022 after Western governments froze Russia’s foreign exchange reserves, raising fundamental questions about the nature of money and safe assets.

Since then, central banks and sovereign wealth funds, particularly in emerging markets, have increased their gold holdings substantially—from about 5–7 percent of reserves in 2022 to 11 percent currently—although still below the 26 percent held by developed nations. Despite a significant rise in US five-year real yields between March 2022 and October 2023, which would historically have depressed gold prices sharply, gold instead gained 7 percent, followed by a further 110 percent rally over the next two years amid relatively stable yields.

This shift reflects an asymmetry in gold’s sensitivity to real yields—becoming more responsive to falling rates and less reactive to rises—rendering many traditional valuation models obsolete. In addition to real yield dynamics, two other factors are notable. First, gold has benefited from a positive correlation between bonds and equities during periods of high inflation, a phenomenon that has reduced the effectiveness of bonds as an equity hedge. Gold has provided better diversification in equity-heavy portfolios over this period.

Second, concerns about US fiscal sustainability have emerged as a structural driver for gold demand. With US public debt at $32 trillion and projected to grow substantially, the market anticipates that fiscal pressures could constrain long-term yields and influence Federal Reserve policy decisions. This dynamic, often described as fiscal dominance, has precedence in countries like Japan, France, Italy, and China. In the US, ongoing fiscal deficits near 6 percent of GDP during full employment raise the possibility of monetary policy adjustments aimed at maintaining manageable long-term borrowing costs, which could further support gold prices.

As investors reassess sovereign risk and currency strength, safer-haven assets such as gold are becoming a more prominent component of portfolios. Despite making up only about 3 percent of individual and institutional financial assets globally, gold’s role as a strategic reserve continues to grow amid uncertainties over monetary policy, inflation, and fiscal health.