Gold price leaps 10% in just one month – what happened?

The gold price jumped 10% in March, and continued to rise in April, adding over 16% in the last three months. What happened to the usually sedate, slow, steady increase in the yellow metal?

We typically see this kind of leap whenever people fear that political instability is going to tip over into war. It happened when Russia invaded Ukraine and when Iran retaliated so strongly to Israel’s actions it kicked off a similar buying spree as the potential for this to escalate very quickly became apparent.

Of course, this is just one reason behind the gold price surge, but it’s a very powerful one considering the problems facing the world right now. Russia Ukraine is still rumbling on and Putin is making ever more threatening noises to the West as they continue to provide weaponry to Ukraine. There is no end in sight for the Israel Gaza conflict, and tensions are growing higher in the area. And the US isn’t exactly looking calm, with Trump now in his first criminal trial. What else is on the horizon?

The Doomsday driver

Gold is a safe-haven asset. Its rarity and immutability have made it a long-term store of value for centuries, and the advent of fiat currency and digital banking has only served to sharpen its safe-haven demand. When geopolitics causes uncertainty, investors want to protect their assets from whatever risk they foresee, like the banks going bust, currencies devaluing, stock market crashes. This doomsday mentality is a key driver of gold demand, and there has been plenty of uncertainty to choose from over the past few years.

The Russia Ukraine war caused the gold price to jump 18% in the initial stages of the war, fuelled by the concern that the local conflict could escalate to all-out war among the world’s superpowers. The invasion of Israel by Hamas in October last year also prompted a spike in the gold price, and once again the focus was on escalation. The continued tension in the Middle East, which is particularly sensitive to contagion fears, has meant consistent geopolitical pressure, contributing to the steady rise in the gold price for several months.

The attacks and retaliation between Israel and Iran in April added further fuel to the escalation fears, because it could be the touchpaper that prompts the US and other major global powers to get involved in the conflict. While the world’s superpowers have very good reason to want to avoid war, investors see a risk high enough to warrant increasing their allocation of gold.

Central banks still buying

These geopolitical fears are being felt from the man-in-the-street to the highest rungs of power. Central banks have been strong buyers of gold for some time, and they buy it to protect themselves from the risks they see in the market, which include geopolitics as well as currency risk (when currencies dip or strengthen it can play havoc with reserve values). When the national banks of major countries like China buy up more gold reserves, it can be a strong signal for the gold market that even governments are looking to protect their reserves with physical gold. Central bank demand has been strong for a long time. The World Gold Council said that reported global central bank gold reserves rose by 19 tonnes in February, the ninth consecutive month of growth, led by China, Turkey and India.

Buy, sell or hold?

Throughout March and April, the gold price broke new barriers. Each time a new ‘All-Time High’ headline was published, it would be followed a day or week later with another. With gold up over 16% in just three months, is it still the right time to buy? And if you hold gold already, is it time to lock in profits and sell up?

‘Playing’ the market is a speculators game. Most people buy investments with the intention of holding them and reaping the gains of longer-term growth. Gold is a prime example of a long-term investment. There are inevitably fluctuations both up and down over time, but the trajectory over many centuries has always been up.

If you want to hold gold for the long term then you must expect it to reach new highs, because that’s what gold does, it rises in value over time.

‌If you’re thinking about liquidating, consider why now and if high prices are a good time to sell or if they will go on to break even more new barriers. Speculation is not the aim of the game in gold, instead it’s security. Gold is a hedge against uncertainty and volatility, it usually rises when other assets fall, and it provides very effective diversification for a portfolio. Right now, there’s plenty of volatility and uncertainty in the market.

All-time highs make great headlines, but they’re also just part of the trajectory of gold as its value grows steadily over the long term. Investing in a diverse portfolio that includes safe-haven assets like gold means you can enjoy the all-time highs as they happen.