- Gold sets a new record high, in dollar terms, of $3,500 an ounce
- Precious metal has easily outperformed the S&P 500 in capital terms this century
- Fears of inflation (or stagflation), soaring government debts and now loss of central bank independence all contribute to metal’s third major bull run since 1971
- Gold mining stocks finally starting to shine as well
“The new all-time highs reached by the US, UK and German stock markets in 2025, to name but three, may be more eye-catching, but gold continues to shine as well, as evidenced by its latest surge to a peak above $3,500 an ounce,” says AJ Bell investment director Russ Mould. “The metal has now beaten the all-conquering S&P 500 in capital and total return terms since 2000, in what is its third bull market since 1971.
Source: LSEG Refinitiv data
“In capital terms, gold is up by more than 1,230% this century against a 337% gain in the S&P 500.
Source: LSEG Refinitiv data
“Gold has nothing more to add in total return terms, since it pays no dividend, and investors who own physical bars may have to swallow storage, transport and insurance costs, too. But the S&P 500 fails to match the metal this century, even allowing for the dividends paid out by its members, which take the total return from the US equity benchmark since 1 January 2000 to 603%.
“This may feed the view of gold bugs that the current era of prosperity, both in terms of the wider economy more generally and the stock market boom more narrowly, is merely a chimera. Sceptics will argue the source of this apparent wealth creation is nothing more than debt, a debt that can only be managed by inflating or printing it away, to the detriment of the value of paper assets and promises, such as cash and bonds.
Source: LSEG Refinitiv data
“Gold’s first bull market came in the wake of President Richard M. Nixon’s decision to withdraw America from the gold standard in 1971. That move pulled down the curtain on the Bretton Woods monetary system that had prevailed since the end of the Second World War and ushered in a period of both unfettered government spending and inflation, the latter stoked in by two oil price shocks thanks to unrest in the Middle East. Central banks were slow to respond to inflation and the US Federal Reserve, for one, tried to cut interest rates too early and unleashed a second wave of inflation. The result was a surge in gold from $35 an ounce in 1971 to a peak above $700 in late 1980.
“The second came in the early part of this millennium. Again, the narrative focused upon how central banks had lost control of the narrative, as they left interest rates too low for too long after the bursting of the technology, media and telecoms bubble in 2000. Free and easy money, and loose regulation, facilitated a frenzy in property and complex, real estate-related debt instruments that turned into a crushing bust. Western central banks had to cut interest rates to zero and launch both a range of unorthodox monetary policies and acronyms, including Quantitative Easing (QE). Investors looked for haven amid the bank bail-out and central bank balance sheet expansion and found it in gold, which romped from barely $250 an ounce in 2001 to a new high of nearly $1,900 by autumn 2011.
“Now we have what looks like a third era in which gold is shining brightly.
“The metal dipped below $1,200 an ounce in late 2018 but has since marched inexorably higher. Covid-19, and more QE, more interest rate cuts and above all more government deficit accumulation all combined to persuade investors to warm to gold once more, as supply of the metal grew so much more slowly than the supply of money.
Source: FRED – St. Louis Federal Reserve database
“Inflation spiked, central banks looked to be behind the curve as they raised interest rates too slowly and fiscal incontinence sparked worries that the authorities would have to try and keep headline rates low to help governments service their soaring debts, whether inflation was falling back toward the 2% target or not.
“Presidential pressure on the US Federal Reserve to cut interest rates, even as the US stock market booms, unemployment remains low and inflation above target is a further potential boost for gold bugs’ case for the precious metal’s inclusion in balanced portfolios.
“The Trump White House seems determined to let the US economy run hot, as it presses for lower direct taxes, less regulation, cheaper energy, a weaker dollar and lower interest rates. The strategy – if a strategy it is – seems designed to try and tackle the ballooning federal deficit, by boosting nominal growth, helped by inflation, and keeping interest rates low.
“America has already added $1.6 trillion to its federal debt pile in the first ten months of the fiscal year to September 2025. The Congressional Budget Office expected further big increases in the coming years, even before Trump’s One Big Beautiful Bill, though tariff income is starting to gather and grow.
“Heaven knows what would happen were an unexpected recession to hit home. That would force an increase in welfare spending and lead to a decline in tax income at the same time.
Source: LSEG Refinitiv data, FRED - US Federal Reserve database, Congressional Budget Office
“It is tempting to argue that this does not matter, and no-one cares, as evidenced by how Congress keeps on raising the debt ceiling. Nor will America ever default so holders of US Treasuries will always get their coupons, and their principal investment returned upon maturity.
“However, further increases in the debt ceiling are inevitable and this raises the issue of how America funds the coupon payments and the maturity of its debts. The annualised interest bill now stands at $1.1 trillion and counting. That is around one-fifth of America’s tax take and more than it spends on defence.
Source: FRED – St. Louis Federal Reserve database
“America cannot afford to keep interest rates where they are for long and there is a danger that the Fed has to cut rates to keep the burden manageable and take risks with inflation (or even let inflation help salt down the debt/GDP ratio, if interest rates are kept below nominal GDP growth for long enough). Worse, it may even have to resort to Quantitative Easing (QE), or money printing, if creditors prove less tractable in their support of America’s spendthrift habits.
Source: FRED - St. Louis Federal Reserve database, Congressional Budget Office, LSEG Refinitiv data
“None of this may happen, and the Fed is currently shrinking its balance sheet, not expanding it. But someone, somewhere is reaching out for gold all the same, whether this is down to Trump’s tax policies, geopolitical concerns or a desire to away from the dollar and US assets more generally, for fear of what the US President may do next.
“Equity investors are paying attention too, given how gold miner shares are starting to rip higher. The New York Stock Exchange ARCA Gold Bugs index has shot up by 90% in the year to date.
Source: LSEG Refinitiv data
“However, the benchmark still trades some 17% below the all-time high it reached in September 2011, and it got there when gold traded at $1,850 an ounce, barely half of the precious metal’s current new peak.”
