Victor Balfour, Investment Strategist at Rothschild Wealth Management, said that gold is experiencing in 2025 one of its strongest rallies in two decades, driven by geopolitical tensions and central bank buying, rather than the traditional influence of the dollar or interest rates.
In an analysis published Tuesday, Balfour explained that the precious metal has risen by more than 25% since the beginning of 2025, putting it on track to log a third consecutive year of double-digit gains — a streak not seen since the mid-2000s.
He added that the latest surge has been neither stable nor predictable, noting that gold has lost touch with its traditional drivers such as real yields and the dollar. Instead, demand has been shaped by geopolitical storms — from trade protectionism to broader conflicts — yet despite these factors, prices have been moving sideways for several months.
Gold as an Investment Asset
Balfour stressed that gold has historically played a pivotal role as a long-term store of value and a means of wealth protection. He described it as the “financial panic button” during crises, such as the U.S. debt ceiling standoff in 2011, the banking collapse of 2008, and runaway inflation in 1979, when gold outperformed equity markets.
Despite this track record, he emphasized that gold remains difficult to value objectively. The absence of yield makes it impossible to apply traditional valuation models such as discounted cash flows. He also noted that current mining costs are not a reliable benchmark for price, given the inelastic nature of supply and the fact that most gold in circulation already exists above ground.
The Complicated Relationship with Rates and the Dollar
Balfour pointed out that high interest rates usually weigh on gold because of its lack of yield, raising the opportunity cost compared with “risk-free” assets like U.S. Treasuries. Yet in recent years, gold has moved in an unusual pattern, rising in tandem with higher yields.
As for the dollar, he noted the relationship is not always clear. Dollar weakness this year may explain part of gold’s rally, but in late 2024, even amid a strong dollar — which should have been a headwind — gold continued to climb against all major currencies.
Alternative Drivers and Lingering Risks
Balfour highlighted that geopolitical risks and heavy central bank purchases — particularly in emerging economies such as China — have been an additional source of support, within a broader move toward “de-dollarization.”
He added that President Trump’s protectionist policies are reinforcing gold’s role as a monetary diversification tool. Still, he warned of two potential threats to the rally:
The resilience of the U.S. economy: Growth remains at acceptable levels, and inflation, while elevated, is still within a manageable range except for the tariff impact. This could make the monetary easing cycle short-lived and bring real yields and the dollar back higher, temporarily limiting gold’s upside.
The rise of Bitcoin and digital assets: These have increasingly been positioned as a hedge against currency debasement. However, Balfour argued they remain unconvincing, reaffirming his clear preference for gold as a wealth-preservation asset rather than a vehicle for quick riches.
Balfour concluded that the strategic case for holding gold as an investment remains strong. He affirmed that his firm continues to assign gold an overweight allocation within investment portfolios, given its role as a liquid diversification tool and a source of resilience during market turmoil.
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