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Gold’s recent retreat from a record high has led to questions as to whether the precious metal has run out of steam and is due for an extended period of sideways trading, as has happened in the past.
It’s certainly the case over the last 50 years that whenever gold has enjoyed a surge in prices it has then suffered long periods where it has generally trended weaker.
But it’s also worth noting that the current rally is only the third-strongest in terms of the percentage gain in the past 50 years, and is actually well behind the price increases recorded in the late 1970s and again in the 2000-2011 uptrend.
The current rally started in October 2022 when the spot price was around $1,617 an ounce and initially the uptrend was gentle, before accelerating dramatically from November 2024 onwards after the election of Donald Trump to a second term as US president.
The precious metal reached an all-time high of $4,381.21 an ounce on October 20, taking its gain since October 2022 to 170%.
It has since slipped back to end Wednesday’s trade at $3,978.63 an ounce.
The rally over the past three years looks impressive, but pales in comparison to the 518% jump between July 1976 and February 1980 and the 643% gain between February 2001 and September 2011.
Both of these extended rallies were followed by a long downtrend, but the losses were nowhere near enough to wipe out the gains.
From the peak of around $692 an ounce in February 1980, gold dropped about 63% to $256 by February 2001, while it retreated 44% from the top of around $1,902 in September 2011 to the low of $1,052 in November 2015.
What does this mean for the current price uptrend?
In historical percentage terms it is not actually that large, despite the massive increase in the US-dollar price.
This doesn’t necessarily mean the rally will extend for several more years, but it does mean that if it does, it would not be unprecedented.
Gold’s history also shows that when rallies do end, prices tend to drop back and then trade sideways for an extended period.
The final thing worth noting is that analysts have usually found it quite difficult to predict when an inflection point is being reached, and the current situation is little different to past experiences.
Diverging forecasts
There is now a wide range of forecasts for the gold price, with some analysts calling for it to fall back to levels closer to $3,000 an ounce, and others calling for further gains to above $5,000 on a one- to two-year view.
The key is to work out if the current bullish drivers are structural or more likely temporary in nature.
The compelling argument for a structural rally is the belief that investors and central banks are seeking alternatives to US assets such as Treasuries and Wall Street equities, and gold is one of the few viable alternatives.
Certainly the World Gold Council’s September quarter report did offer data supporting this view, with central banks buying a net 220 metric tons in the third quarter, up 28% from the previous quarter.
Central bank purchases started to rise rapidly in 2022 and have since been above 1,000 tons per year, with 2025 on target to become the fourth consecutive year.
Investment demand for gold bars and coins as well as exchange-traded funds reached 220 tons in the third quarter, up 47% from the same period in 2024, the council said.
The bearish note was that surging prices crimped jewellery demand, which dropped 19% in the third quarter to 371.3 tons from 460 tons in the same period a year earlier.
There are other risks to the bullish gold picture, such as a correction in global equities resulting in investors having to sell gold to cover losses elsewhere.
But the ongoing concerns over the US fiscal deficits and the threat to the independence of the Federal Reserve posed by Trump’s seeming determination to control monetary policy are likely to be enough to keep gold firmly on investors’ radar.
(The views expressed here are those of the author, Clyde Russell, a columnist for Reuters.)
(Editing by Jamie Freed)
