The main driver was ultimately the rapid increase in investment demand.

The price of gold has almost doubled in the last twelve months and tripled in the last four years, a feat that previously took around 20 years, recently breaking through the US$5,000 per troy ounce mark. This is despite the fact that demand for jewellery and purchases by central banks fell sharply last year. The decline in demand was particularly pronounced in India (-24%) and China (-25%). Demand for jewellery in China fell to its lowest level in more than 15 years. Central banks purchased 863 tonnes of gold last year, around 20% less than in the previous year.

The main driver of the rise in gold prices was investment demand, which rose by more than 70% year-on-year in the fourth quarter of 2025. For the year as a whole, there was even an increase of more than 80% to a record level of 2,175 tonnes, as published by the World Gold Council. The reasons for this record-high investment demand were a weaker US dollar, expectations of further interest rate cuts by the US Federal Reserve, concerns about a changing world order and, above all, speculation about higher gold prices.

In the short term, the gold price trend has recently been boosted by the weakness of the US dollar. The US is struggling with massive government debt, which currently stands at around 35.6 trillion dollars. The interest on this debt amounts to $1.1 trillion per year, which has overtaken the US military budget of $980 billion as the largest expenditure item. In addition to the high budget deficit and rising debt burden, increasingly inward-looking US politics are also gradually eroding the dollar's ‘confidence premium’.

The sharp rise in the price of gold is driven by expectations of further interest rate cuts by the US Federal Reserve. Since gold itself does not yield any interest, it becomes more attractive to investors when interest rates fall.

Venezuela, Greenland, tensions with China and Russia, and the crisis hotspot Iran – Donald Trump is trying to reshape the world. He approved military action and had Venezuela's ruler arrested in violation of international law. After that, he turned his attention to other countries: Cuba, Mexico and Greenland. Then there is the crisis hotspot Iran: tens of thousands of people are demonstrating for freedom and an end to the mullah regime – US President Trump is considering military intervention. Is US President Trump creating more peace or more chaos? And what are the consequences for Europe: can it continue to rely on NATO and its alliance with the US? Gold has benefited from these uncertainties about the future of the international order..

Investors' speculation on a higher gold price is reflected in extreme positioning on the derivatives markets where leveraged contracts are traded: there were extreme bets that gold could reach 10,000, 15,000 or even 20,000 US dollars by the end of the year. At the same time, put hedging positions rose sharply around US$4,000. This imbalance is a sign of dangerously crowded positioning. CFTC data confirmed this: net long positions in gold had reached a record level of around $78 billion. The CFTC – the Commodity Futures Trading Commission, the US authority for futures market supervision – thus showed the most significant overpositioning since records began.

It is therefore not surprising that the Bank for International Settlements (BIS) is warning of increasing exaggeration in the gold markets. According to the BIS's latest annual report, the price of gold is now showing bubble-like characteristics. The analysis suggests that the gold market may be in a ‘persistent bubble’. Such phases are typically followed by periods of negative or at least subdued returns, according to the BIS. The central bank institution is not alone in this assessment. In recent months, various central banks, including the Monetary Authority of Singapore and the Bank of England, have also warned of increasing risks in the precious metals markets.

For us, the recent exponential rise in the price of gold and a MACD (moving average convergence/divergence indicator) showing unprecedented overbought conditions in gold are clear signs of a bubble, as illustrated in the chart below (red circle).

Source Grafic: Refinitiv Reuters, R&B

Another criterion for a bubble could be the sharp rise in price sensitivity. The decision by US President Donald Trump to nominate former Fed member Kevin Warsh as successor to Fed Chairman Jerome Powell alone caused the price of gold to fall by 9 per cent on 29 January this year. This was the sharpest one-day decline in a decade. Three days later, the price fell by a further eight per cent during trading. At times, gold cost US$4,406.45 per troy ounce. Kevin Warsh is considered a staunch opponent of inflation, a trait that does not make gold popular.

If economic data remains surprisingly strong, the Fed maintains its restrictive stance for longer and real interest rates rise again, gold could come under pressure. A strong dollar and easing inflation concerns would then weaken the safe-haven case. Speculative gold buyers who entered the market late could panic sell at the first sign of a downturn, triggering a sharp sell-off. In such an environment, only patient, long-term investors and central banks would take advantage of the opportunity to buy at favourable prices.

DISCLAIMER

This report provides a brief overview of the economic environment and has been prepared solely for marketing purposes. The information does not constitute financial analysis, investment advice or a recommendation to buy or sell. The information has not been prepared in accordance with the legal provisions promoting the independence of financial analysis and is not subject to any prohibition on trading following the dissemination of financial analysis. This report cannot and is not intended to replace investment advice. The information in this report is based on our own analyses as well as on external sources that we consider reliable, but which we have not subjected to neutral review. We accept no responsibility or liability for the accuracy or completeness of the information. The opinions expressed in this report are solely those of the authors and are subject to change at any time; such changes of opinion do not have to be published. Past performance, simulations or forecasts are not a reliable indicator of future performance. Forecasts are a poor estimator.