Why buy gold in 2025

For gold investors, it would be hard to beat 2024. Amid a perfect storm of geopolitical uncertainty, interest rate cuts and central bank demand, gold prices rose over 25%. But the ‘gravy’ of potential stellar growth isn’t the key reason investors buy gold. It is variously used as an inflation hedge, a safe-haven asset, a volatility hedge and portfolio diversifier, and all these motivations will come into play in 2025. So, what could motivate you to buy gold in 2025?

Safe-haven asset

Gold has been a store of value for millennia. Its durability, scarcity, aesthetic appeal and historical role as currency ensure it continues to hold its value today. Unlike fiat currencies, gold typically retains its purchasing power during inflation or currency devaluation. And its stability during market volatility makes it a preferred choice for wealth preservation and portfolio diversification in uncertain times. 2025 is likely to include some or all of those motivations.

Market instability

Markets are inherently volatile, and there are many potential catalysts for instability. Chief among these is the change in the US government administration, which always comes with policy change, but under Trump these changes may be more unexpected. He has already signalled a shift in international trade policy which is likely to create winners and losers, a recipe for volatility and uncertainty in global markets.

Gold can act as a counterpoint to uncertainty in an investment portfolio. As a safe-haven asset It often rises in value when other assets are falling as investors choose to load up on the precious metal during volatile times. Which is why even when markets are calm, holding a percentage of assets in gold can be a prescient hedge against this market uncertainty.

Inflationary pressure

We’re (hopefully) unlikely to see the same level of rampant inflation that tore through global economies in 2021-2022. Major interest rate rises put the brakes on the inflation tear, but it’s not entirely over yet. Many economies that aim to stabilise inflation at around 2% annually, have yet to reach that target. In the US inflation rose slightly in November to 2.7%, while in the UK inflation clocked in at 2.6% in November, up from 2.3% the month before.

Monetary policy is the most important lever central banks have to manage the inflationary environment, hence the rapid rise in interest rates when inflation surged to 40-year highs in 2022. The flipside of that rapid rise in interest rates was a cooling of economic growth, so now central banks are looking to bring rates down without reigniting inflation. This delicate balancing act isn’t expected to restore equilibrium to the 2% target in 2025. Even the Federal Reserve doesn’t expect to hit that target before 2026.

Meanwhile the US could face further inflationary pressure if the incoming president enacts some of his campaign pledges. Donald Trump has pledged to drastically increase tariffs on imported goods. Specifically, he plans to impose a tariff of up to 20% on goods from other countries and 60% from those made in China. His argument is that tariffs will create more jobs in the US, punish countries for unfair trade practices and increase income for the federal government which has a substantial deficit to manage. But the more likely outcome will be a return of inflation as US consumers bear the brunt of higher import costs that can’t be swallowed by the companies that have to pay them.

Gold is often used as an inflation hedge because as a physical commodity, its value can also rise in line with prices. This allows investors to maintain the value of their assets rather than have it eroded by the rising cost of goods. Considering the memory of rampant double-digit inflation is still fresh, incorporating an inflation hedge into your portfolio may be considered a prudent move.

Geopolitical instability

Geopolitical events like conflict, political instability and trade disputes can all impact the gold price, spurring it higher as investors seek safety in the precious metal. The historical evidence for this is stark. The financial crisis in 2008, the Brexit referendum outcome, the Covid pandemic, the Russia/Ukraine war and the current crisis in the Middle East have all been catalysts for a flight to safe-haven gold.

It’s impossible to say what might spark geopolitical tensions, but both the Ukraine and the Middle east remain hotbeds of conflict, either of which could spark further geopolitical instability. Political change and trade tensions have already been marked on 2025’s calendar by the incoming US administration, and there are any number of global touchpaper’s that could be lit in the forthcoming year.

Portfolio diversification

Gold has a low correlation to most other assets which means it’s used to diversify an investment portfolio and hedge against those other assets falling. The idea of spreading risk is not a new one, and gold has long been suggested as a counterbalance to other investments like stocks and bonds. It’s not just private investors that choose this path, central banks use gold as a way to balance their own reserve portfolios, diversifying away from currencies and hedging against inflationary risk.

Central bank gold buying has been well above the 10-year average since the end of 2022. While 2024 is unlikely to have surpassed the stellar demand in 2022 and 2023, it remains very strong, with some central banks buying strategically amid a strengthening gold price. Industry body the World Gold Councill said in its 2025 outlook: “Central bank buying is policy driven and thus difficult to forecast, but our surveys and analysis suggest that the current trend will remain in place.” Retail investors could take the central banks’ lead and ensure their assets are properly diversified.

Why buy gold in 2025

The reasons to buy gold in 2025 are not dissimilar to the reasons to buy gold in 2024 – it is a perennial asset with safe-haven status that acts as a hedge against uncertainty, provides diversity in a portfolio, and has a track record of often protecting against volatility, geopolitical instability and inflation. When the world is at peace, markets are stable and economic growth is assured, gold is still valuable as a precious metal that proves its worth if the tide turns. Unless peace and growth is assured, you should consider investing in gold in 2025.