Gold's Record Rally: Is Now the Time to Buy Physical Gold or Gold-Backed Assets?

In 2025, gold has surged to unprecedented heights, breaking through the $3,500-per-ounce barrier in April and cementing its role as a cornerstone of strategic asset allocation. This rally is not a fleeting anomaly but a response to a perfect storm of geopolitical tensions, inflationary pressures, and a global shift in monetary policy. For investors, the question now is whether to allocate capital to physical gold, gold-backed ETFs, or gold mining stocks—and whether this surge represents a long-term opportunity or a speculative overreach.

The Drivers Behind Gold's Resurgence

Gold's meteoric rise is rooted in three pillars: geopolitical instability, inflationary fears, and central bank demand.

1. Geopolitical Tensions as a Catalyst
   The U.S. presidential election cycle, Trump's reemergence with aggressive tariff policies, the protracted Russia-Ukraine war, and China's assertiveness in the South China Sea have created a climate of uncertainty. These “black swan” risks have pushed investors and central banks to treat gold as a strategic asset. For example, China's People's Bank increased its gold reserves to 6.5% of total reserves in 2025, while Poland added 67 tonnes of gold. Emerging markets collectively accounted for 410 tonnes of global gold purchases in the first half of 2025—a 24% increase over the five-year average.

2. Inflation and De-Dollarization
   With inflation eroding fiat currencies and the U.S. dollar's dominance under scrutiny, gold has become a hedge against devaluation. The Federal Reserve's anticipated rate cuts and the broader de-dollarization trend have amplified demand for non-yielding assets like gold. Private investor holdings in gold reached $5 trillion by late 2024, driven by a 31% surge in the value of gold bars and coins.

3. Central Bank Demand as a Price Floor
   Central banks are buying gold at a pace unseen in decades. J.P. Morgan projects quarterly purchases of 710 tonnes through 2026, with 43% of surveyed central banks planning to increase gold holdings. This institutional demand acts as a structural floor for prices, even during periods of economic stress.

Physical Gold vs. ETFs vs. Mining Stocks: A Tale of Three Returns

While gold's price has risen 33% year-to-date, the returns across investment vehicles have diverged sharply.

• Physical Gold: A 33% gain, driven by central bank demand and safe-haven flows.
• Gold ETFs (e.g., SPDR Gold Shares, GLD): Mirrored physical gold's performance, offering liquidity and ease of access.
• Gold Mining Stocks (e.g., VanEck Gold Miners ETF, GDX): Surged 90% YTD, outperforming physical gold due to leverage and operational efficiency. Junior miners like Discovery Silver Corp have even spiked 500%, while majors like Newmont and Barrick delivered 100% and 75% returns, respectively.

The outperformance of mining stocks is no accident. Unlike physical gold, mining equities offer operational leverage—as gold prices rise, margins and cash flows expand more rapidly. Additionally, improved capital discipline and ESG integration have made the sector more attractive.

Expert Opinions: Bull Case vs. Caution

The bull case for gold is robust. Analysts like Ryan McIntyre of Sprott and Hugo Ste-Marie of Scotiabank argue that central bank demand and inflationary pressures will keep gold prices elevated. JPMorgan forecasts $4,000 per ounce by mid-2026, citing structural shifts in global reserves.

However, skeptics warn of overexposure to mining stocks. Jim Paulsen cautions that while physical gold is a stable hedge, mining equities carry company-specific risks and are vulnerable to macroeconomic volatility. For example, a sudden economic rebound or policy surprises could trigger a sell-off in leveraged miners.

Strategic Allocation: Balancing Risk and Reward

In a world of macroeconomic uncertainty, gold should be a core component of a diversified portfolio. Here's how to approach it:

1. Core Holdings: Allocate 5–10% to gold via ETFs (e.g., GLD) or physical bullion for stability.
2. Satellite Plays: Use mining stocks (e.g., GDX) for amplified returns, but limit exposure to 5–15% to manage volatility.
3. Barbell Strategy: Combine majors (e.g., Newmont) with juniors (e.g., GDXJ) to balance growth and stability.

Long-Term Outlook: Structural Shift or Bubble?

Gold's rally is underpinned by structural factors: declining gold discovery rates, rising production costs, and central banks' pivot to gold as a reserve. However, risks remain. Regulatory hurdles for new mines, environmental concerns, and the rise of digital gold alternatives could temper demand.

For now, the bull case holds. Central banks are buying gold at a pace that suggests they view it as a strategic necessity, not a speculative play. Meanwhile, private investors are increasingly treating gold as a “systemic asset” to hedge against unpredictable shocks.

Final Call: Buy, But Stay Balanced

The current gold rally is a response to systemic risks, not a speculative frenzy. Investors should capitalize on this by allocating to gold in a balanced manner. Physical gold and ETFs offer stability, while mining stocks provide growth potential—but with caution. As the world grapples with shifting power dynamics and monetary uncertainty, gold's role as a strategic reserve is likely to endure.

In the end, the key is to diversify—leveraging gold's unique properties while avoiding overconcentration in any single vehicle. The market's message is clear: in 2025, gold isn't just a metal; it's a masterclass in risk management.