What is the future outlook of this round of gold bull market?

Author: Chen Daotian

This round of the gold bull market has been ongoing since early 2024, with prices rising from $2,000 per ounce to $4,000 per ounce (unit in USD/ounce). After nearly two years of rapid increase, on October 21, gold prices suddenly experienced a significant decline, with the maximum correction approaching 10% by October 31. What are the reasons behind this gold bull market, and what is the future trend? This article examines four hypotheses regarding gold prices and analyzes the future price movements.

How Much Do You Know About Gold?

According to the World Gold Council, the total existing gold stock worldwide in 2024 is 216,000 tons. Although this is the result of thousands of years of human mining, half of the gold mined since World War II is included in this total. In terms of usage distribution, 17% is held in official reserves, 46% is jewelry, 22% is private investment, and 15% is industrial use. In 2024, global gold production reached 3,661 tons, a year-on-year increase of 0.6%, setting a new record high. Proven underground gold reserves (economically mineable) are slightly over 50,000 tons. One ton of gold equals 32,150 ounces; at the current market price of $4,000 per ounce, one ton of gold is worth approximately $130 million. The total value of all existing gold worldwide is about $27 trillion.

Key Milestones in Gold Prices Since 1971

After World War II, under the Bretton Woods system, gold prices were fixed at $35 per ounce. Governments worldwide maintained control over the private gold market, with prices fluctuating slightly around $35. In November 1970, the price of private gold markets began to liberalize, with gold prices rising from $36.5 per ounce to $39 by the end of the year (monthly average). On August 15, 1971, the U.S. Department of the Treasury announced the end of the fixed gold-dollar price, and by year’s end, gold reached $48 per ounce. This rapid increase continued until the end of 1974, when it hit $180 per ounce. High inflation rates exceeding double digits in 1974 forced the Federal Reserve to tighten monetary policy. Gold entered a bear market in 1975, but after consolidating in 1976 and with the Fed easing monetary policy again, gold prices resumed rising in 1977, reaching a peak of $680 at the end of 1979 and early 1980.

After Paul Volcker became Fed Chair, interest rate hikes were implemented to control inflation, leading to a three-year gold bear market from 1980 to 1982, with prices falling from $680 to $320. From 1983 to 2002, gold prices experienced two decades of low-volatility oscillation, which can be divided into two phases. Between 1983 and 1996, prices mostly ranged between $300 and $400. From 1997 to 2002, prices oscillated at even lower levels, mostly between $260 and $350. The second phase was characterized by capital diversion to the tech stock bull market and deflationary pressures following the burst of the Nasdaq bubble. This period, often called the “death of gold,” lasted about twenty years. From 2003 to 2012, a decade-long bull market saw gold rise from $330 to around $1,760, driven by low interest rates and low inflation in the U.S. Over the 42 years from 1970 to 2012, gold experienced roughly equal periods of “long bull” and “long bear” markets.

Since 2013, the gold market has seen more frequent shifts between bull and bear phases. From 2013 to 2015, it was a bear market, with prices falling from $1,650 to $1,060. Between 2016 and 2018, prices fluctuated within roughly $1,100 to $1,350. A bull market from 2019 to 2021 saw gold rise from $1,300 to nearly $1,900. The market entered another period of oscillation from 2022 to 2023, with prices between $1,650 and $1,950. Since early 2024, gold has been in a bull market up to the present.

Regarding the determinants of gold prices, four main hypotheses are discussed, with historical data analyzed for each.

The Store of Value Hypothesis: Long-term Returns and CPI

Calculating long-term gold returns depends heavily on the chosen time frame. Using the late October 2024 price of $4,000 per ounce (which doubles the price over the past two years, potentially overestimating returns), if we start from the 1970 gold standard period at $35, the annualized increase is about 9%. Starting from the 1980 peak at $680, the annualized return is about 4%. If bought at the median price of $370 in 1990, the annualized return is approximately 7%. If purchased at the 2012 high of $1,800, the return is about 6%.

Gold, as a physical asset, should theoretically maintain a stable relative value compared to a basket of goods over the long term. Suppose, in 1992, the U.S. CPI basket and gold were valued at a 1:1 ratio. In a purely real economy, this ratio should remain roughly the same in 2025. Comparing the U.S. CPI index and gold prices since 1992, gold mostly lagged behind CPI, occasionally catching up when the gap widened, then falling behind again. From 1992 to 2010, gold was below CPI; it briefly surpassed CPI from 2011 to 2013; then lagged again until 2020, when it temporarily caught up; and as of September 2024, it has again surpassed CPI and continues to do so.

This “price stickiness” of gold warrants deeper exploration. Relative prices among consumer goods (e.g., a pound of eggs versus rice) are primarily determined by marginal utility, which adjusts quickly due to scarcity and utility comparisons. Gold’s slow adjustment may reflect its “uselessness,” as without utility, it lacks the scarcity implied by price theory, leading to “stickiness.” Historically, gold has lagged behind a basket of goods but tends to catch up when the gap is large, maintaining a stable gold-to-basket price ratio. Using “uselessness” to explain price stickiness is an innovative approach by the author, though its theoretical value remains to be evaluated by readers.

The Safe-Haven Hypothesis

Gold is often regarded as a “precious relic,” nearly eternal, while stocks—its main risk asset—have profits that fluctuate depending on macro risks. From an asset pricing perspective, during macroeconomic risks, gold’s “stability” becomes more attractive, leading to price increases—this is the so-called safe-haven function. Using the implied volatility of S&P 500 options to gauge macroeconomic risk in the U.S. (and somewhat globally), we expect gold prices to move in tandem with volatility under the safe-haven hypothesis. However, actual evidence is mixed. During the 1994 Mexican peso crisis, 1997 Asian financial crisis, and 1998 Russian debt crisis, gold prices hardly responded. From 2000 to 2003, during the dot-com bubble burst, gold also showed little reaction. Between April and December 2008, amid the subprime mortgage crisis, gold prices declined alongside the crisis, contradicting the safe-haven theory. During the peak of the European debt crisis in 2011, gold rose, consistent with the hypothesis. In early 2020, during the COVID-19 pandemic, despite significant global economic risks, gold only rose modestly, showing limited safe-haven effect. During the 2025 trade war, gold prices increased, again supporting the safe-haven view. Overall, the evidence for gold’s safe-haven function is mixed and not very strong.

The relationship between geopolitical risks and gold prices is often discussed. After the Russia-Ukraine conflict began in February 2022, gold declined from February to November, showing no safe-haven effect. The Iraq war in 2003 saw gold prices rise about 10% over the year. The Hamas conflict in October 2023 saw only a slight increase, then a decline. The 2014 Crimea invasion led to a decline in gold prices. Overall, gold’s role as a hedge against geopolitical risks appears limited.

Gold and the US Dollar: The World Commodity Hypothesis

From a price theory perspective, gold is a global commodity priced in USD. When the dollar weakens, gold prices should rise (the global weighted price remains stable); when the dollar strengthens, gold should fall. This logic is straightforward and supported by evidence. For example, from late 2008 to late 2011, the dollar index declined significantly (due to fears of quantitative easing), and gold prices rose sharply (though gold’s increase exceeded the dollar’s decline). Similar patterns are observed at other times. However, inconsistent evidence exists: between mid-2014 and early 2017, the dollar index rose sharply (as QE expectations waned), but gold prices remained flat. From early 2018 to early 2020, both the dollar and gold rose together. From late 2023 to 2024, both also increased simultaneously. Recently, since early 2025, the dollar has fallen while gold has risen, adding support to this hypothesis. Over the long term, from 2006 to 2025, the dollar index nearly doubled, while gold prices increased nearly fivefold, indicating a decoupling and challenging the simple hedge hypothesis. Overall, despite its popularity, the evidence supporting and contradicting the gold-dollar hedge hypothesis is mixed.

The Opportunity Cost Hypothesis: Real Interest Rates and Gold

Another influential hypothesis suggests that since gold is a non-yielding asset, its price should inversely correlate with real interest rates, which represent the opportunity cost of holding gold. From 1994 to 2003, U.S. 10-year real yields declined from 4% to 1%, while gold prices remained nearly unchanged. Between 2004 and 2007, real yields and gold prices rose together, contradicting the hypothesis. From 2007 to 2012, real yields fell from 2.4% to zero, while gold surged, supporting the hypothesis. From 2012 to 2022, the two generally moved inversely, again supporting the hypothesis. However, since late 2022, real yields have stabilized around 1.5-1.7%, while gold prices soared, contradicting the theory. Overall, the real interest rate hypothesis for gold pricing is not strongly supported.

Four Hypotheses and the 2026 Gold Outlook

From the above discussion, the store-of-value hypothesis is the most robust and theoretically grounded. The safe-haven, dollar, and real interest rate hypotheses are less convincing. The author also discusses the “uselessness” of gold as a reason for its price stickiness. Combining these insights, the author believes the store-of-value hypothesis underpins gold pricing, with other hypotheses providing narratives at different times. Given that current gold prices have again significantly surpassed CPI, the author considers gold to be in a high-risk zone. Short-term upside potential depends on the strength of various narratives. Recent price increases have also been influenced by central banks reallocating assets from USD to gold, providing new momentum and narratives for gold prices.

Historically, the bull and bear markets before 2012 were particularly long, driven by special factors. For example, the 1970s bull market was largely due to decades of undervaluation caused by fixed prices and inflation fears. The 2003-2012 bull market was a recovery after 20 years of stagnation. Since 2013, the frequency of gold’s bull and bear phases has increased, and gold has not significantly lagged behind inflation over the long term. The author believes this current wave of the gold bull market has largely completed its “value correction.” As for catalysts, the author is confident that a dollar crisis will not occur. The market has largely failed to recognize that the Fed’s massive liquidity injections during 2020-2021 and the high inflation of 2022 increased the U.S. debt burden, effectively negating the “money printing to reduce debt” hypothesis. Surprisingly, many market participants overlook this compelling evidence.

The sharp correction in gold prices since late October may not mark the turning point of this gold bull market, but it sends a warning signal worth serious attention. Keynes once said that people’s obsession with gold is a relic of a barbaric era, a view the author agrees with, at least for macroeconomic research. From a macro risk and safety margin perspective, the author would not buy gold at this time.