Gold: A Necessary Evil?

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The latter part of 2025 saw a discernible shift in investor behaviour. Capital, previously chasing ephemeral gains in speculative ventures, began to retreat towards what are, in essence, relics of a less optimistic age. The price of gold increased by 26% in the final quarter, and by a substantial 65% over the entire year – a figure that should give pause for thought, if not alarm.

Little more than a month into 2026, this momentum shows no sign of abating. With the commodity hovering just below $5,000 per ounce, the question is not whether gold will rise further, but what this rise signifies. It is a question that demands a clear-eyed assessment, divorced from the prevailing enthusiasm.

Let us examine the factors driving this renewed interest in gold, and attempt to determine whether a purchase at the current price is, in fact, a prudent course of action.

Why the Ascent of Gold?

The price of gold, like most commodities, is subject to cycles, and is inextricably linked to broader economic forces. The current surge is largely attributable to uncertainty surrounding monetary policy, and the persistent, if somewhat obscured, issue of inflation. These are not new phenomena, but their combined effect is proving potent.

When interest rates are low, or anticipated to fall, the opportunity cost of holding a non-yielding asset like gold diminishes. Investors, lacking attractive alternatives, turn to it as a store of value. It is a simple equation, though rarely acknowledged as such.

Some economists predict further reductions in interest rates. Moreover, the growing U.S. budget deficit, and its inflationary implications, have reinforced gold’s role as a hedge against the erosion of purchasing power. It is a safeguard, however imperfect, against the debasement of currency – a process all too familiar to those with a historical perspective.

Will the Rise Continue?

One factor likely to sustain gold’s ascent is sovereign demand. The escalating geopolitical tensions across Europe, the Middle East, and South America, coupled with an increasingly unpredictable trade policy emanating from Washington, have prompted central banks to bolster their gold reserves. It is a tacit acknowledgement of instability, and a preparation for further disruptions.

Gold is perceived as neutral and liquid – a rare combination in a world of increasingly complex financial instruments. It offers a degree of protection against volatility in both stock and bond markets. From a structural perspective, this rising sovereign demand is establishing a price floor, even as the strength of the U.S. dollar becomes increasingly speculative. The irony, of course, is that this demand is itself a symptom of the very instability it seeks to mitigate.

Against this backdrop, it is plausible that gold will outperform the stock market for a second consecutive year. It is not a prediction to be welcomed, but one to be considered with sober realism.

Is Gold a Prudent Investment Now?

In the long term, the price of gold will continue to be determined by interest rate movements and perceptions of fiat currency risk. Investors must understand that, like any asset, gold is subject to corrections. During periods of strong economic growth and rising yields, its appeal diminishes, as investors seek higher returns elsewhere. It is a predictable pattern, yet one frequently overlooked in moments of exuberance.

The most sensible way to gain exposure to gold is through the SPDR Gold Shares ETF (GLD +2.01%). This fund provides direct access to gold in a liquid and cost-efficient manner. It avoids the complexities and risks associated with physical ownership, while still allowing participation in any potential price appreciation.

The current macroeconomic and geopolitical landscape is fraught with uncertainty. Therefore, hedging existing stock positions with a modest allocation to gold appears, at this juncture, to be a prudent strategy. It is not a call for panic, but a recognition that, in times of instability, even the most tarnished of relics can serve a purpose.

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2026-02-09 19:02