Gold has surged to the top of investors’ wish lists in 2025. The yellow metal, long revered as a hedge against inflation and geopolitical turmoil, has seen its price rocket to record highs above $3,600 (€3,080) per ounce, delivering returns of nearly 40% year-to-date ––gold’s best year since 1978.
While global equity markets have delivered positive returns this year, they remain well behind gold’s performance. In contrast, bonds are enduring yet another year of disappointing performance.
Why bonds no longer offer protection
US Treasuries and European sovereign bonds have long served as shock absorbers in balanced portfolios.
In times of economic weakness, bonds typically rallied as risk assets declined. It held true only as long as inflation remained subdued, but that relationship appears to be breaking down.
Since peaking in 2020, European government bonds have shed around 20% of their value, and US long-duration Treasuries have fared even worse, halving in price over the same period. Year-to-date in 2025, benchmark European bond indices are down 2%, underperforming both equities and commodities.
For investors relying on the classic 60/40 portfolio mix—60% equities, 40% bonds—the returns have been underwhelming. Over the past five years, the strategy has returned just 32%, while the S&P 500 alone returned 109%.
Worse still, the supposed diversification benefits have broken down: balanced portfolios experienced similar volatility and even deeper drawdowns compared to all-equity allocations.
When growth falters, geopolitical risks escalate, and inflation stays elevated, bonds struggle to deliver protection.
Inflation is the bond market’s greatest adversary—eroding real returns and undermining their safe haven status. In such an environment, gold steps in to fill the void.
Enter gold: a hedge against twin risks
Amid this structural bond underperformance, investors are increasingly turning to gold as a portfolio stabiliser—one capable of protecting against risks emanating from both equity and bond markets.
Gold’s value is largely uncorrelated with other asset classes. That feature has made it an ideal hedge in today’s multifaceted risk environment.
In episodes such as the post-Liberation Day selloff in April, both equities and bonds declined in unison, offering investors little refuge.
This breakdown in correlation mirrors patterns from the 1970s, when inflation ran rampant amid weak central bank credibility.
Then, as now, gold outperformed all major asset classes, driven by investor demand for protection against monetary debasement and systemic risk.
According to Goldman Sachs, equity-bond portfolios are particularly vulnerable in two scenarios: when institutional credibility erodes––as during the 1970s––and when supply shocks drive ‘stagflationary’ pressures––as seen in 2022). In both, gold historically shines.
Central banks lead, investors follow
Investor behaviour in 2025 is also being influenced by an aggressive wave of central bank gold buying, particularly from emerging markets.
Since Western sanctions froze Russia’s foreign currency reserves in 2022, countries such as China, India and Turkey have accelerated efforts to diversify reserves away from the US dollar, funnelling billions into gold.
According to the IMF, central bank gold purchases have risen fivefold since February 2022.
Investors are now following the wave. The SPDR Gold Shares (GLD), the world’s largest physically-backed gold ETF, has attracted $11.3 billion (€9.63bn) in inflows this year alone—on track to surpass its record from 2020.
This is a clear sign that private investors are beginning to follow the lead of central banks, rethinking gold’s role as a strategic reserve asset.
Unlike bonds, which can be inflated away or subject to sovereign default, gold does not depend on any institution’s credibility. It cannot be printed, sanctioned or debased—attributes that are proving increasingly attractive amid a world of rising debt, polarised politics and fragmented risks.
High levels of government debt and fiscal looseness further cloud the outlook for bonds. Investors increasingly view them not as safe assets, but as liabilities vulnerable to inflationary erosion.
If central banks are compelled to suppress yields to manage debt servicing costs—a process sometimes referred to as “financial repression”—then real returns on bonds could remain negative for years.
How high could gold price rise?
In 2025, this risk is not merely economic but institutional.
Investors are increasingly wary of political interference in monetary policy, particularly in the United States. Donald Trump’s aggressive campaign against Fed Chair Jerome Powell has raised alarms over potential pressure on the Federal Reserve to keep interest rates artificially low.
Should the Fed’s independence be compromised, its ability to fight inflation could be undermined—making gold an attractive hedge against institutional fragility.
Goldman Sachs analyst Samantha Dart highlighted this concern, warning that if just 1% of US private Treasury holdings rotated into gold, prices could soar to nearly $5,000 (€4,263) per ounce.
Even in a more moderate scenario, Goldman expects gold to hit $4,000 (€3,410) by mid-2026, citing political uncertainty, global central bank demand, and declining faith in US fiscal management.
The gold signal
Gold’s historic rally in 2025 reflects more than just market momentum—it marks a fundamental shift in investor priorities.
As bonds lose their defensive power and political risk undermines confidence in monetary institutions, gold has reasserted itself as the ultimate safe haven asset.
Its uncorrelated nature, resistance to inflation, and independence from institutional credibility make it uniquely suited to a world where traditional safeguards are faltering.
In portfolios once anchored by bonds, gold is now taking centre stage.