Is precious metal still the gold standard of investments?

In October, the price of gold reached an all-time high of €2564.51 per ounce — an increase of 175 percent on the 2014 price of €931.56. To put that into context, the Euro has increased in value by 27 percent over the same period. 

The rise has been particularly steep within the last 12 months: gold has seen an increase in value of 41 percent, while Euro appreciation has hovered at around three percent. And according to the latest figures from Statista, gold was second only to the dollar in average trading volume in 2023, with a daily average of 162.2 billion US dollars. 

Unsurprisingly, the increase in value has attracted significant interest from investors, from China and Kenya to small-scale investors and those new to the market. We talked to finance expert and Academic Collaborator at Esade Eloi Noya to explore the reasons behind the sharp rise in gold prices and offers some advice for those considering investing in this market.  

Short-term gain, long-term pain?

Although gold has long been seen as one of the safest assets in times of crisis — and there’s no doubt we’re living in an extremely complex geopolitical environment of war, conflict and political tensions — all investors should take the time to assess whether investing into the precious metal is the right move. 

We are likely to continue to see rises in gold in the short to medium term, as a shield against inflation

Despite its steady increase in value, Noya warns that gold is an inherently volatile asset. “Its supply grows very little year after year, whereas demand fluctuates significantly depending on macroeconomic and geopolitical circumstances, leading to large price swings that are not advisable for any investor”, he explains. As we saw in the few days after Donald Trump was declared victor in the US presidential race, when prices dropped by more than two percent, macroeconomic and geopolitical circumstances can trigger massive fluctuations. 

Alongside the less predictable upsets, there are structural and less cyclical factors to take into account. According to Noya, expansionary monetary policy since the pandemic has been leading to higher inflation and a weakening of currencies against assets such as gold. “The expectation of cumulative price inflation also pushes the price up, as gold is a safe haven — or hedge — for investors against this inflation,” he states.  

And, considering that highly liquid monetary policies show no signs of changing in the near future, the Esade expert expects short- to medium-term gains in gold are likely to continue as a shield against inflation (unpredictable geopolitical factors permitting). 

Hoarding assets

The steep rise in price can also be attributed in no small part to the significant accumulation of gold by central banks in recent years. In the second quarter of 2024, the US held 8,133 metric tons of gold, accounting for 72.41 percent of Central Bank holdings.  

We should never concentrate our investment in a single asset, even if we believe it has high appreciation potential

Germany continues to have the largest gold holding in Europe, with 3,351 metric tons (71.46 percent of holdings), followed by Italy with 2451.84 metric tons (68.33 percent) and France with 2436.97 metric tons (69.99 percent). 

Although central bank demand dropped slightly overall in 2024, those in emerging markets are bucking the trend. The largest increases were seen in Poland (18.68 tons), India (18.67 tons), Turkey (14.63 tons), Uzbekistan (7.46 tons) and the Czech Republic (5.91 tons).  

The only certainty is uncertainty

Given this bullish outlook, many investors may feel the urge to invest in gold. For them, Noya has an important recommendation. Market swings are inevitable, he says, and portfolios of all sizes should contain a diverse range of products. “We should never concentrate our investment in a single asset, whether it’s gold, equities, or any other, even if we believe it has high appreciation potential”, he advises. 

But taking all into account, gold remains a strong asset. As the Esade expert points out: “It should undoubtedly be part of a diversified portfolio. It is certainly one of the assets that will likely perform best in an environment of high political instability, very high levels of sovereign debt, and lax monetary policies that will continue to drive inflation”. 

And how can we invest in gold in 2025? Physical gold, such as bars of different sizes or gold coins, financial instruments such as gold exchange-traded funds (ETFs), where the investor buys a package of bonds or shares, or a direct investment into shares of gold mining companies can all form part of a healthy and diverse investment portfolio.