Gold at US $4,000: What’s Driving It and Where Do We Go From Here?
Corrado Tiralongo - Nov 05, 2025
Gold has surged past US$4,000 per ounce, rising roughly 50% year-to-date. Driven initially by central banks and Chinese demand, this rise has more recently been renewed by investor inflows from Western markets.
Executive summary:
Gold has surged past US$4,000 per ounce, rising roughly 50% year-to-date. Driven initially by central banks and Chinese demand, this rise has more recently been renewed by investor inflows from Western markets.
The momentum reflects both fundamental and behavioural factors: falling real yields, fiscal anxiety and investor exuberance.
While prices may continue to grind higher in nominal terms, near-term risks of a pause or pullback have increased as parts of the rally detach from traditional macro drivers.
Over time, gold’s trajectory in real terms is more likely to resemble the prolonged 2008–2014 cycle than the explosive but short-lived rally of the late 1970s.
From central banks to investors: what’s behind the rally
Gold’s latest leg up has broadened and matured. Earlier this year, the rally was anchored in strong Chinese and central bank demand, but by late summer, Western investors took the lead. North American buyers accounted for roughly 60% of record monthly inflows into gold-backed ETFs in September, marking a clear shift toward renewed institutional participation.*
Central banks remain an enduring pillar of support. Net purchases continue to run well above pre-pandemic levels, and survey data suggests that reserve managers plan to keep diversifying away from the U.S. dollar in the years ahead. This reflects both rising concern about fiscal sustainability and a broader geopolitical reordering that has reshaped global reserve management since 2022.
The macro backdrop: lower real rates, higher uncertainty
Several forces continue to underpin gold’s appeal. Real interest rates are expected to fall as the Federal Reserve begins to ease policy while inflation remains near 3%. Historically, gold has had a negative relationship with real yields and the prospect of lower rates may be likely to keep the metal strong.
At the same time, fiscal and geopolitical risks remain elevated. Persistent U.S. deficits, recurring debt-ceiling disputes and renewed tariff tensions have reinforced investor demand for perceived safe-haven assets. Against this backdrop, gold’s role as a portfolio hedge, particularly within balanced or multi-asset strategies, has re-emerged, supported by both institutional and retail investors seeking diversification from policy and market risk.
When exuberance meets fundamentals
Not all of gold’s recent gains can be attributed to fundamentals. The 10% rise since mid-September occurred alongside a stable U.S. dollar and slightly higher real yields, indicating that sentiment, rather than data, has been driving the latest stage of the rally. In short, a fear of missing out has crept into the market.
The rally has also extended to gold equities, where major gold-mining indices have risen roughly 120% year-to-date, far outpacing gains in the underlying metal. This degree of outperformance highlights the leveraged sensitivity of miners to spot prices but also points to growing speculative participation. Historically, such sharp divergences between miners and bullion have tended to normalise once momentum fades.
That shift raises the risk of a short-term pullback if expectations around the pace of rate cuts are scaled back or if inflation moderates more quickly than expected. The Fed may be likely to cut more slowly than markets currently anticipate, which could temper gold’s near-term upside momentum.
China’s role: an uneven but enduring demand story
Another notable development has been the recent cooling of Chinese gold demand. The Shanghai gold price premium, a key gauge of domestic appetite, has turned negative, reaching a five-year low. This reflects stronger performance in Chinese equities, which has temporarily reduced the relative attractiveness of holding gold.
Still, the softness appears cyclical rather than structural. China’s long-term accumulation trend remains intact, supported by rising household wealth, currency diversification and the government’s strategic desire to hold less dollar-denominated assets. Historically, Chinese demand has tended to ebb during equity rallies but resumes once equity performance normalizes.
Positioning through the cycle
Looking ahead, gold’s current cycle may be likely to evolve more like the 2008–2014 rally, prolonged, but moderating, rather than the parabolic surge of the late 1970s. In this scenario, gold should remain well supported in nominal terms, even if real returns flatten out.
For diversified portfolios, gold continues to serve as a valuable stabilizer. The combination of slower global growth, policy divergence and ongoing fiscal uncertainty argues for maintaining some exposure, not as a speculative bet, but as part of a broader risk management framework.
Concluding thoughts
At US$4,000 per ounce, gold is testing the boundaries of valuation and psychology. The underlying drivers, central bank accumulation, fiscal anxiety and geopolitical tension, remain intact, but sentiment now plays a larger role.
Importantly, when viewed in real, inflation-adjusted terms, gold’s price now stands near its historical extremes. Periods of exceptionally high real prices have often been followed by lower real returns, a pattern that Erb and Harvey first described as the ‘golden dilemma’. The term refers to the tension between gold’s role as protection and the risk that investors overpay for it. Today’s elevated valuations, alongside strong ETF inflows and policy-motivated central bank buying, suggest that much of the recent performance may already be priced in.
While the long-term backdrop remains supportive, the near-term balance of risks calls for discipline over enthusiasm. Gold continues to serve as a form of portfolio insurance, valuable in times of policy and market stress but costly when confidence returns.
The Canadian equity market has benefited from this exposure, as gold miners have been among the market’s strongest performers in 2025, contributing positively to relative returns. From a total portfolio perspective, Canada Life Investment Management Ltd. has both direct and indirect exposure to gold through bullion futures and gold-mining equities. These exposures provide diversification and a modest inflation hedge.
Read a follow-up analysis exploring this valuation question in more depth: how high real prices, ETF behaviour, and ‘de-dollarization’ flows are reshaping gold’s long-term risk-return profile.
Sincerely,
Corrado Tiralongo
Vice President, Asset Allocation & Chief Investment officer
Canada Life Investment Management Ltd.