Gold Prices Surge 43% This Year, Reaching Record High of $3,775.10

Gold prices have surged to a record high for the 36th time this year, sparking concerns about a potential bubble as investor enthusiasm reaches new heights. On Monday, the price of gold for December delivery on the New York Mercantile Exchange rose by 69.30 dollars, or 1.9%, to close at 3,775.10 dollars per ounce, marking the highest closing price for the most active contract on record. This is the 36th time gold has set a new historical closing high this year, with a cumulative increase of 43% since the beginning of the year, far exceeding the inflation-adjusted historical high of 1980, sparking intense market debate about whether the rise is excessive.

Since mid-2023, gold prices have been on a sustained upward trajectory. In a recent report, Brett Friedman of Winhall Risk Analytics/OptionMetrics noted that gold is seen by many investors as the "perfect investment at the perfect time" due to factors such as inflation, currency devaluation, debt, geopolitical conflicts, and socio-economic anxiety. This has kept gold demand at elevated levels for an extended period. However, Friedman emphasized that this does not necessarily mean gold is in a bubble.

Friedman pointed out that based on the performance of the options market, gold currently resembles a "vigorous and sustained bull market" rather than a true bubble. Typically, if a market is in a bubble, implied volatility would rise significantly, reflecting investors' extreme uncertainty about the future, while out-of-the-money options would rise rapidly relative to at-the-money options. However, gold options implied volatility has remained within normal ranges this year, and out-of-the-money options demand has not shown irrational spikes, indicating that investor sentiment has not yet reached a frenzied state. He cautioned that financial bubbles do exist but are rare and usually only confirmed in hindsight, so the "bubble theory" should be approached with caution.

However, Friedman also noted that there are some early warning signs in the gold market, such as the increased exposure of gold on social media and mainstream media, as well as the explosive growth in gold ETF trading activity. These phenomena suggest that the potential for a bubble in gold is beginning to emerge.

In contrast to Friedman's cautious stance, some market participants believe that the rise in gold is supported by solid fundamentals and that there is still room for further gains. Adrian Ash, research director at BullionVault, noted that the current rise in gold can be attributed to a "perfect storm" of factors, including the Federal Reserve's rate cuts, political divisions and escalating violence in the United States, and escalating tensions between NATO and Russia, all of which have boosted the demand for gold and silver as safe havens. Additionally, disagreements among Western countries on issues ranging from the Gaza war to global strategic responses to other countries have weakened market confidence.

Ash added that the collapse of global trust and cooperation shows no signs of abating, and last week's significant inflows into gold ETFs indicate that investors' actual allocation to precious metals is just beginning. According to FactSet data, the world's largest gold ETF, SPDR Gold Shares, has seen net inflows for five consecutive weeks.

Jake Hanley, managing director of Teucrium, stated that Monday's rise in gold was not driven by new news but was a continuation of the strong technical trend since early September. He pointed out that the current gold price chart shows typical breakout characteristics, including a long period of consolidation, clear resistance levels, an upward trend, and a breakout with volume, indicating strong bullish momentum and suggesting that the upward momentum will continue.

Gold prices reached a record high of 3,728 dollars per ounce on Monday, continuing the upward trend that began at the end of 2022. Demand is expected to remain strong for some time due to multiple factors.

Key drivers include central bank gold purchases, strong investment demand as shown by inflows into physical gold ETFs, the reversal of Western security policies by Trump, the trade wars he initiated, and concerns about the independence of the Federal Reserve.

Will central banks continue to increase their purchases? According to estimates by the metals-focused organization, central banks are expected to purchase 900 tons of gold this year, double the average annual purchase of 457 tons from 2016 to 2021. Since the Western sanctions froze about half of Russia's official foreign exchange reserves in 2022, developing countries have sought to reduce their dependence on the dollar.

According to the industry organization, the official data reported to the International Monetary Fund reflects only 34% of the estimated total gold demand by central banks in 2024. During 2022-2025, central bank gold purchases are expected to account for 23% of annual gold demand, double the proportion in the 2010s.

Will the downward trend in the jewelry industry continue? According to data from the World Gold Council, gold jewelry demand, a major source of physical gold demand, fell 14% to 341 tons in the second quarter of 2025, the lowest level since the third quarter of 2010, when the industry was severely impacted by the pandemic. High prices have dampened buyer demand.

The World Gold Council estimates that high prices are the main reason for the decline in demand. Most of the market share comes from China and India, whose combined market share has fallen below 50% for only the third time in five years.

The metals-focused organization predicts that gold jewelry production will decrease by 9% to 2,011 tons by 2024 and will experience a 16% decline this year.

Will people continue to buy small gold bars and coins? The retail investment market has seen a significant shift in consumer preferences, but overall purchasing volume remains strong.

According to a report by the World Gold Council, gold coin purchases fell by 31% in 2024, while gold bar investment demand increased by 10%. The metals-focused organization predicts that net investment in physical gold will increase by 2% to 1,218 tons this year. In a positive price outlook, demand for gold in Asia remains strong.

Can gold ETFs attract more fund inflows? According to data from the World Gold Council, gold ETFs have become a major source of demand. From January to June this year, the total inflows into gold ETFs reached 397 tons, the highest half-year inflows since 2020. As of the end of June, the total holdings of gold ETFs reached 3,615.9 tons, the highest level since August 2022. Five years ago, the record was 3,915 tons. The metals-focused organization predicts that after achieving 7 tons of fund inflows in 2024, the net investment in gold ETPs will reach 500 tons by 2025.