With little fanfare, and with very little by way of explanation from financial commentators, the gold price is rising once more. We look into the reasons why the precious metal is back in demand and what it means for investors.
Central banks are buying again
Since the start of August, the gold price has risen close to 10% from $4,040 per ounce to $4,434 at the time of writing. There are a number of reasons why this has happened, none of them obvious at first glance.
Central banks were big buyers of gold in 2025, sending the price to an all-time high of almost $5,600 per ounce in January 2026. After a six-month hiatus, they are back, with Chinese purchases of bullion in July hitting their highest level since October 2023.
China has been steadily accumulating physical reserves of gold for several years. This is partly to diversify its foreign reserves away from traditional assets like US Treasury bonds.
Other countries in the so-called ‘BRICS’ group – Brazil, Russia, India and South Africa – have also been accumulating gold. Along with China, these countries want to reduce their reliance on the US dollar and insulate their economies from the vagaries of US monetary policy.
Real yields are falling
Rising geopolitical tensions are another reason why gold is in demand. As investors look to diversify their portfolios, gold can be a ‘buffer’ as it is uncorrelated with traditional financial assets like stocks and bonds.
During times of increased market volatility, gold tends to act like a safe haven. Similarly, in times of economic crisis, because it has limited industrial uses, gold is a relatively safe asset.
Another key reason to own gold is as a hedge against inflation, because it rises when real yields fall. Real yields are determined by the rate of inflation, which has been rising due to the Middle East crisis and higher energy prices.
However, with the exception of the ECB, central banks have held back from raising interest rates. That means the real yield on long bonds is beating eaten away by higher than expected consumer prices.
A study by the Chicago Fed* confirmed the effect of real interest rates on gold prices by looking at the data back to 1970. It also showed US and gloabl GDP played an important role in determining the long-term trend of the gold price.
Why are people worried now?
There is a sense, at least among some large investors, that financial markets are ‘as good as it gets’. At the same time, corporate earnings growth is well above its long-run average, leading to overvaluation in many sectors.
Nicolai Tangen, head of Norges Bank, the world’s largest sovereign wealth fund, said this week he was ‘more nervous’ about markets. This came after the fund posted an all-time high return of $150 billion in H1 thanks to investments in technology stocks.
Speaking with Bloomberg, Tangen said there were growing concerns circular financing was inflating an AI bubble. The fund, which owns 1.5% of the world’s listed companies, has predicted geopolitical risk and an AI bubble could wipe out a third of its value.
The fund’s largest 10 holdings now account for nearly 25% of the portfolio. ‘We have never seen concentration risk like that’, Tangen told Bloomberg. The manager added: ‘The fund has doubled in the last four years. This will not last.’
What does it mean for investors?
Taken individually, none of the factors mentioned above – geopolitical risk, a desire to diverisfy away from the US dollar and traditional risk assets, falling real interest rates, an AI bubble and overvaluation in markets based on excess earnings – would be reason alone for the gold price to be rising. The problem is, they are all happening at the same time.
There is no sign of progress on a deal to reopen the Strait of Hormuz. Investors are increasingly diversifying away from US financial assets. Real interest rates are falling globally as inflation creeps higher. Global stocks are trading at an all-time high as measured by the MSCI All-Countries World Index.
With risks seemingly piling up on all sides, we’re not surprised gold is back in demand and the price is quietly moving higher. As a hedge against all kinds of downside risks, now is probably a good time to give it another look.
*https://www.chicagofed.org/publications/chicago-fed-letter/2021/464
