Key Takeaways
- Gold’s rise has been fueled by global instability, record central bank buying, and a weaker U.S. dollar.
- However, one expert warns that a sharp rebound in the dollar or a Fed policy shift could send gold prices lower.
- Even with these risks, gold remains a cornerstone safe haven—just don’t forget that diversification matters.
Gold has been on a remarkable run this year, consistently hitting new highs and nabbing a new record in September. Meanwhile, investors and central banks alike have piled in, treating the precious metal as a hedge against geopolitical and economic risks. But as strong as the rally has been, experts warn that a sudden shift in the economic backdrop could pull prices back down.
“The single biggest risk I see for gold to maintain prices at their current level is a sudden stabilization and restrengthening of the U.S. dollar,” says Brandon Aversano, CEO of The Alloy Market. That could quickly temper demand and push prices lower as confidence shifts back to currency. Other risks include sudden shifts in Federal Reserve policy and easing inflation—but that doesn’t mean gold can’t still play a critical role in diversifying your portfolio.
Why Gold Prices Are So High
Gold prices have surged over 40% this year, hitting highs of over $4,000 per ounce in November. Aversano attributes this economic uncertainty as the primary driver of surging gold prices, with concerns about the strength of the U.S. dollar and other currencies also contributing to the trend. Investors and governments alike view the metal as an asset that will hold its value—if not appreciate—when economic uncertainty spikes, he says. During the 2008 financial crisis, for example, gold prices rose 4.3% despite falling prices among nearly all assets except government bonds.
Growing demand is another boon for gold. “During times of political and economic uncertainty, not only do consumers invest in more tangible assets like gold as a hedge, so do central banks,” Aversano says, noting that central banks have been purchasing gold at unprecedented rates. China and the United States, for example, have imported record amounts in recent years, tightening supply and lifting prices.
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Why Gold Could Be Vulnerable
Despite its momentum, gold’s rally isn’t guaranteed to continue. Aversano cautions that a strengthening U.S. dollar, which has fallen in value by about 10% this year, would put immediate pressure on prices. Because gold is priced in dollars, confidence in the currency can shift demand away from the metal, just as a lack of confidence can fuel demand.
Federal Reserve policy could also be a turning point. “A sudden shift in Fed policy, including large rate cuts, would create investor and consumer demand around risk assets as opposed to safe-haven assets like gold,” Aversano says. Though he notes that rapid monetary policy changes are “somewhat rare,” Aversano cautions that we may see faster-than-expected Fed rate easing into 2026.
Another risk is if inflation were to settle and currency values became less volatile. This would similarly increase investor appetite for other asset classes, resulting in downward pressure on the price of gold and potentially other precious metals, such as silver and platinum.
Diversifying Among Safe Havens
Even if prices do fall, Aversano stresses gold’s staying power. “Gold will continue to serve as a solid safe-haven asset across time,” he says, noting that its appeal extends beyond investing to industrial uses and jewelry, creating steady demand for an asset with limited supply.
But that doesn’t mean investors should treat gold as their only safety net. Aversano notes that while its long-term case is strong, downturns are inevitable. Government bonds, defensive stocks, and real estate are other assets that help shield against broader market uncertainty. And ultimately, a well-balanced portfolio that includes—but doesn’t depend solely on—gold is the best defense.
Gold has benefited from years of uncertainty, but the very conditions that propelled it higher could reverse. A stronger dollar, Fed rate cuts, or easing inflation could all sap demand.
Still, its scarcity and broad demand keep it central to most diversification strategies. To reap the full benefits of safe-haven assets, investors should see them as one piece of a broader strategy—valuable, but not infallible.