-Analysis-
PARIS — For a long time, gold was looked down upon by investors as speculative and uninteresting because it generates neither interest nor dividends. In recent months, however, the precious metal has been gaining in popularity, and is increasingly included in the portfolios that asset managers offer their clients.
For the latest news & views from every corner of the world, Worldcrunch Today is the only truly international newsletter. Sign up here.
With the sharp rise in interest rates, persistent inflation in the United States, rising geopolitical tensions around the world and the re-regionalization of production chains, gold offers qualities not typically found in equities and bonds.
“With the change in the market regime, the correlation between equities and bonds works less well to cushion shocks, and we need to find an alternative asset to play this role,” explains Fabien Benchetrit of BNP Paribas Asset Management. “Gold is one of the diversification tools to meet this need.”
That’s why Benchetrit has included the precious metal in some of his funds, which requires educating pension funds and institutional investors unaccustomed to gold exposure.
Financial cultures
The rise of gold’s attractiveness to investors is not a passing trend, says Julien Dauchez, of Natixis Investment Managers. Studying 2025 outlook reports of the major financial institutions, he notes a fundamental shift emerging: “They now favor a very slightly alternative model to the 60-40 model we’ve known for decades, 60% in equities, 40% in bonds,” the investment manager explained. “These institutions are announcing the arrival of a 50-30-20 model, that’s 50% in equities, 30% in bonds and 20% in alternative assets.” And Dauchez says the latter tranche is made up mainly of private assets, but increasingly of gold.
The scale of the phenomenon varies from region to region. “Each country has its own financial culture,” Dauchez says. “In the allocation proposed by asset managers or private banks in Switzerland or Germany, gold has always been significant, which contrasts greatly with the United States or even France.”
Most market analysts expect an ounce of gold to reach ,000
But overall, the investment in gold is increasing everywhere. In Switzerland or Germany, it will rise from 8% to 11%, or even 12%, while in France, it will increase from 2% to 4%.
Moreover, gold is set to record solid performances in the years ahead, even if they will be less spectacular than the 27% rise in 2024. Most market analysts expect an ounce of gold to reach ,000. Bank of America believes that the symbolic milestone will be reached as early as 2025, while Goldman Sachs expects it to be reached next year. The ounce is currently trading at ,748, having reached a high at ,787 on Oct. 30.
Why do Goldman Sachs analysts believe that gold could rise less quickly than expected? The reason is the reduction in the number of rate cuts by the U.S. Federal Reserve this year. As gold doesn’t earn any interest, it is a safe-haven asset competing with U.S. debt, and is therefore moving in the opposite direction to real rates. As the Fed seems to be taking its time cutting rates, real rates should lose ground less quickly than expected.
Geopolitical factors
The most optimistic investors point out that high real rates in 2024 did not prevent gold from posting one of the biggest gains in its history last year.
Competition between powers and unstable supply circuits is creating tensions
“Real rates are no longer the key variable in gold’s appreciation. Geopolitics is now the determining factor,” Benchetrit says. “The shift from a peaceful, U.S.-dominated world of free trade and easy access to resources, to competition between powers and unstable supply circuits is creating tensions that justify the high geopolitical premium in gold prices.”
The final factor supporting gold prices is central bank buying. For two years in a row, in 2022 and 2023, central banks have bought more than 1,000 tons of gold, compared with an average of around 500 tons over the past 10 years. This trend may slow, but it won’t stop.
Since the war in Ukraine and the freezing of Russian assets, emerging countries, notably China, have been de-dollarizing their reserves and increasing the share of gold. For all those reasons, few would imagine that gold would stall even in the event of a ceasefire in Ukraine after Donald Trump’s arrival in the White House.
