5 Main Reasons Why the Price of Gold has Risen 40% in a Year

Over the past year, the price of gold has surged by 40%, marking one of the most significant increases in recent history. The last time gold experienced such a rapid rise was in 2019–2020. Several key factors have contributed to this price movement, and in this article, I will provide an in-depth analysis of these elements, along with my own assessments.

Five Key Factors Driving the Price of Gold:

1. The Growing Importance of Gold as a Neutral Reserve Asset
2. Capital Shift from Government Bonds to Gold
3. Central Bank Interest Rate Cuts and Rising Inflation Expectations
4. Increased Activity from Asian Investors Dominating the Gold Market
5. Significant Improvement in the Technical Market Structure

Each factor has been evaluated on a ten-point scale based on its impact on gold prices over the past year.

1. Gold’s Growing Role as a Neutral Reserve Asset

Impact: 9/10

Result: Record-Breaking Central Bank Gold Purchases

The war in Ukraine and escalating geopolitical tensions have significantly influenced the gold market. In mid-2022, shortly after the European Union and the United States froze Russia’s foreign exchange reserves and cut the country off from the SWIFT payment system, central banks ramped up their gold purchases. An estimated $300–350 billion of Russian assets were frozen, mostly invested in Western government bonds.

This unprecedented move led other nations to reassess their reserve allocations, reinforcing gold’s status as a geopolitically neutral reserve asset. Emerging economies, particularly China, reacted by increasing their gold holdings to mitigate similar risks. Official data suggests

China has significantly expanded its gold reserves, although market evidence indicates the country’s actual purchases could be even larger

Over the past three years, central banks have consistently added more than 1,000 tonnes of gold to their reserves annually, now accounting for over 20% of global physical gold demand. This shift underscores gold’s growing appeal as a hedge against geopolitical uncertainty and financial instability.

2. The Declining Appeal of Government Bonds

Impact: 8/10

Result: Capital Flowing from Bonds to Gold

Traditionally, gold prices have been closely linked to government bond yields – rising bond yields typically put pressure on gold, and vice versa. However, over the past two years, this relationship has broken down. Despite bond yields reaching their highest levels in 15 years due to central bank rate hikes, gold prices have continued to climb.

This shift reflects broader concerns about sovereign debt sustainability. Most G7 countries now have public debt exceeding 100% of GDP, and with higher refinancing costs, their interest payments have surged. Investors are increasingly skeptical about the long-term stability of government bonds and anticipate that debt burdens will ultimately be reduced through inflation. As a result, capital has shifted from bonds to gold and, to some extent, cryptocurrencies like Bitcoin.

While this trend has had a strong impact on gold prices, its influence could grow even further if a second wave of inflation materialises, potentially elevating its long-term impact to 10/10.

3. Central Bank Rate Cuts and Persistent Inflation

Impact: 6/10

Result: Pressure on Real Bond Yields and Decline in Currency Purchasing Power

Historically, gold has performed well during periods of high inflation in financial markets. While inflation peaked in mid-2022 at around 9% in the U.S., it has since stabilised above central bank targets. The Federal Reserve and other central banks have responded by cutting interest rates – lowering the Fed’s base rate by 100 basis points to 4.25–4.5% – which has contributed to increased money supply.

Although inflation remains a key concern, its direct impact on gold prices has been somewhat muted

Notably, gold prices hit a five-year low in September 2022, just a few months after inflation peaked, contradicting conventional expectations that high inflation directly boosts gold prices. Western investors were relatively passive in the gold market in early 2024, only increasing their exposure later in the year as prices had already risen.

The inflation narrative remains relevant, but its direct influence on gold prices over the past year has been weaker than other factors.

4. Asian Investors Taking the Lead in the Gold Market

Impact: 8/10

Result: Asian Markets Now Drive Gold Pricing

A major shift occurred in 2024, as Asian investors became the dominant force in gold pricing. While demand for gold-backed ETFs and physical gold declined sharply in Western markets, investment demand soared in China and India.

In China, purchases of investment gold (coins and bars) rose by 20% to 346 tonnes, while in India, demand increased by 29% to 239.4 tonnes. Combined, these two countries accounted for approximately 12% of total global gold investment demand, excluding jewellery. Meanwhile, European retail gold purchases plummeted by 80% compared to 2022, and U.S. demand fell by 39%.

This unprecedented shift demonstrates a reduced influence of Western investors on gold prices, marking a fundamental change in market dynamics.

5. Gold Breaks Through Key Technical Resistance Levels

Impact: 9/10

Result: No Further Technical Barriers to Price Growth

While technical analysis is often overlooked in discussions about gold prices, it played a crucial role in last year’s price surge. In February 2024, gold decisively broke through the long-standing $2,000–2,080 resistance level, which had held for nearly four years.

Historically, this price range acted as a psychological barrier, with previous peaks occurring during the COVID-19 crisis (August 2020), the onset of the Ukraine war (2022), and the banking crisis (Spring 2023). However, in March 2024, gold decisively surpassed this threshold, triggering a strong upward momentum.

This technical breakout mirrored a similar event in June 2019, which led to a 50% price increase within a year

Given that this breakout coincided with strong fundamental drivers – such as central bank purchases and increased Asian demand – it suggests that the upward trend in gold prices has significant staying power.

Conclusion: A Strong Bullish Outlook for Gold

The surge in gold prices over the past year has been driven by a combination of geopolitical shifts, financial instability, and technical market dynamics. While central bank purchases and Asian investor activity have been the primary drivers, other factors – such as inflation, bond market concerns, and technical breakouts – have also played a crucial role.

For those interested in a deeper dive into the underlying trends shaping the gold market, the upcoming Gold Market Report 2025, set for release in March, will provide comprehensive insights and price forecasts for the coming years.