Given a rare convergence of monetary policy uncertainty, attacks on Federal Reserve independence, disruptive trade policy, shifting fiscal policies, heightened local and geopolitical tensions, and high sovereign debt levels, gold continued to be well bid. Its year-to-date gain of just under 50% puts it on an annual pace not seen since 1979. The FTSE Gold Mines Index has been even stronger, which is not surprising given that miners historically have been leveraged to the price of gold; after climbing 50% during the third quarter, the index is up around 135% year to date.¹

Gold Price Takes off after a Slow Start to the Quarter

The gold price appeared to consolidate early in the third quarter, trading in a fairly narrow band for the first six weeks or so of the period as investors sought a clear read on the Federal Reserve as it carefully weighed a weakening labor market against inflationary risks. Fed Chair Powell’s August 22 speech at the annual Jackson Hole Economic Symposium appeared to be the dovish signal investors wanted, and the price of gold broke sharply higher as markets began pricing a near-certain September rate cut.

Execution of the Trump agenda, meanwhile, continued to add fuel to the uncertainty fire, heightening the appeal of perceived “safe haven” assets like gold. Trade policy remained unstable during the quarter, with tariffs implemented, delayed, revised and revoked with little warning, deepening the murk around the potential for inflation to reemerge. Meanwhile, the unsystemic implementation of tariffs has caused confusion within the federal body charged with collecting them. To wit, it was widely assumed that gold bullion imported into the US would be exempt from tariffs until a ruling letter from the Customs and Border Protection Agency averred that certain gold bars—including the one-kilo bars that underpin gold futures trading on COMEX in New York—were subject to tariffs: 39% in the case of Switzerland, the world’s largest gold refining hub. Futures contracts in New York spiked relative to the global spot benchmark when the tariffs news came out in early August, only to tumble when an administration official quickly announced that an executive order exempting gold bars from tariffs was forthcoming.²

Meanwhile, Trump continued to press central bankers resistant to his monetary policy point of view, raising concerns about the durability of the Fed’s historical independence. While Chairman Powell continued to bear the brunt of Trump’s attacks—including loose talk about his removal—Lisa Cook, a voting member of the Fed’s board of governors, was a new target during the quarter. Accusing her of mortgage fraud, Trump in late August announced that he had fired her “for cause” after demanding she resign from her position. Cook filed a lawsuit against the president, and the Supreme Court on October 1 prohibited her immediate ouster, though the justices will hear arguments in the case in January.³ Regardless of the outcome, the specter of fiscal dominance is unsettling.

While the abovementioned factors battled for headlines in the financial press, other seemingly intractable factors that have supported gold demand across its current multiyear rally—including massive sovereign debt loads, geopolitical frictions and internal political strife—remained firmly intact. As a result, global central banks have continued to bolster their strategic gold reserves, if at a slower pace than in the previous three years, which saw net purchases in excess of 1,000 tonnes annually. Meanwhile, demand for physically backed gold ETFs—which capture investment demand from both institutional and individual investors—has picked up meaningfully this year, with year-to-date net fund flows of $64 billion equating to more than 600 tonnes of gold.⁴ Continued demand from these buyers could serve as an ongoing source of support for the gold price.⁵

Trees Don’t Grow to the Sky

While gold’s rally over the past 18 months has been impressive, we believe a pause is inevitable. In our view, the key risk to the gold rally at this point is the potential for recession. While recessions historically have been positive for the price of gold over the medium- to long-term, the onset of economic contraction can have negative implications.

We saw this during the brief but sharp Covid-19–related recession in 2020 as well as during the 2008–09 recession associated with the global financial crisis. In both instances, however, gold’s value as a potential hedge against adverse events ultimately reasserted itself after an initial period of price weakness.

Independent of fluctuations in economic activity, we believe consistent, strategic gold exposure is critical for diversified portfolios seeking to avoid the permanent impairment of capital and to maximize risk-adjusted returns across cycles.