Gold Prices Surge to Record Highs: What’s Driving the Rally?

Gold’s Relentless Climb: A New Era for the Precious Metal?

Over the past six weeks, gold prices have surged an astonishing 16%, reaching US$3,943 an ounce and inching closer to the psychological US$4,000 mark. This rally is more than just a blip—it’s a reflection of deep-seated anxiety rippling through the global economy. From government shutdown fears in the United States to escalating geopolitical tensions and record-breaking central bank gold purchases, investors are seeking shelter in the yellow metal like never before.

According to TradingView, the momentum behind gold is unmistakable. Safe-haven buying has accelerated as central banks worldwide, wary of US dollar volatility and the specter of inflation, have ramped up their gold reserves. For the third consecutive year, central banks purchased over 1,000 tons of gold in 2024—a doubling of pace since Russia’s invasion of Ukraine in 2022. The World Gold Council reported a 5% month-on-month increase in gold-backed ETF assets, hitting a record US$407 billion in August alone.

Why Are Investors Flocking to Gold?

The answer lies at the intersection of several powerful trends. First, the US government faces persistent shutdown threats and ballooning debt, prompting doubts about the dollar’s long-term stability. Second, the Federal Reserve is expected to cut interest rates twice by the end of the year, making non-yielding assets like gold relatively more attractive. Third, global de-dollarisation—countries reducing their reliance on the US dollar—has supercharged demand for physical gold.

In India, gold’s status as a traditional store of value has only strengthened. Seasonal festive demand has coincided with global uncertainties, pushing domestic gold prices to historic highs. On October 6, 24-carat gold was priced at ₹12,077 per gram, up by ₹137, while 22-carat and 18-carat gold also saw notable increases, according to Indian Express. Despite minor corrections in recent days, the long-term trajectory remains upward, with buyers crowding jewelry stores and investors adding gold to their portfolios as a hedge against inflation.

What Does This Mean for Gold Miners?

The surge in gold prices hasn’t just benefited passive investors—it’s also redefined the landscape for gold mining companies. Analysts at UBS envision a scenario where gold hits US$4,500 an ounce (just 14% above current levels), projecting up to 150% valuation upside for select miners. Companies like Northern Star and Regis Resources are at the forefront, with Northern Star expected to see a staggering 140% gain if the rally continues.

But there’s a catch. While the sector as a whole has delivered an extraordinary performance—the All Ords Gold Index is up 22% in a month and more than doubled year-to-date—the costs of scaling up production are mounting. Northern Star, for instance, is navigating a steep capital expenditure curve, with investments expected to peak at US$3.0 billion in FY26 before tapering down. This means that while projected free cash flow yields are eye-popping on paper, much of that cash may be reinvested into expansion and upgrades, delaying the payday for shareholders.

Furthermore, historical valuation multiples are beginning to look stretched. Many mining stocks now trade at levels that either assume gold will remain at these highs or risk a sharp correction if the metal retreats. For example, Newmont, the world’s largest gold producer, is priced for perfection, and even minor disappointments could prompt sell-offs. Yet, should the gold price continue to climb, current valuations could still be considered cheap in hindsight.

Gold in Everyday Life: Jewelry and Investment

For millions, gold is more than a ticker symbol—it’s an integral part of daily life and cultural tradition. In India, 24-carat gold remains the metal of choice for investors, while 22-carat and 18-carat varieties are preferred for jewelry. This year’s festival season has intensified demand, with buyers eager to lock in prices before further increases. Despite the soaring costs, gold’s reputation as an inflation hedge and symbol of prosperity endures.

However, not everyone can ignore the risks. Rapidly rising gold prices often tempt speculative buyers, but history shows that sharp corrections can follow periods of euphoria. For those purchasing gold jewelry, the added costs of craftsmanship and taxes can also dilute returns, making it crucial to weigh the emotional and financial value of each purchase.

Looking Ahead: Could Gold Reach $4,500 and Beyond?

Goldman Sachs, among others, has raised its forecast, predicting gold will surpass US$4,000 by mid-2026 and potentially hit US$4,300 by the end of that year. If central bank buying, inflation fears, and geopolitical uncertainty persist, the case for gold remains strong. Yet, as with all markets, nothing is guaranteed. The very factors driving gold higher—such as central bank demand and government instability—can shift quickly, leaving latecomers exposed.

So, is gold in a bubble, or is it simply reflecting a world that’s more uncertain than ever? The answer depends on whether the underlying risks subside or deepen. For now, the rally shows no signs of abating, and gold’s ancient allure continues to shine brighter in the modern financial landscape.

Assessment: The surge in gold prices is both a reflection and a warning. While it rewards investors and miners, it signals deep anxiety about the global economic order. If the drivers behind this rally—government instability, central bank buying, and inflation fears—persist, gold could have further to run. But as always, sharp gains bring heightened risks, and only those who understand both sides of the metal will thrive in the volatility ahead.