The price of gold has risen to over US$5,000 (£3,662) an ounce for the first time ever, after doubling in value over the course of a very strong 2025 for the precious metal.
Author
- Hafiz Muhammad Usman Rana
Senior Lecturer in Finance, Birmingham City University
The usual explanation for such strong rises is that gold is considered a safe bet for investors when other options look a little shaky. High inflation for example, when cash quickly loses value, is often linked to gold price rises. Trade wars and actual wars usually have a similar effect.
A common view then, is that gold performs well in moments of instability. But research I was involved with suggests that gold prices are not simply a reaction to short-term economic events.
Instead, they are a response to something deeper, reflecting an overall level of confidence in how economic systems are managed over time.
For during recent periods of sustained economic stability in the west, gold prices have remained largely flat. The steady growth, moderate inflation and predictable policy of the early 1990s and 2000s for example, were not good times for gold.
And rather than responding to every economic peak or dip, the thing that really pushes gold prices up is instability in what's known as "monetary credibility" . In other words, when there are doubts about whether central banks and governments will be able to maintain discipline over inflation, public debt and currency value over the coming decades. At times like this gold becomes more desirable.
This helps explain why gold can continue to rise even as inflation falls, as has happened recently in several big economies, including the US and parts of Europe.
And although recent weakness in the dollar and political uncertainty in the US have probably added momentum to gold's rise, these factors amplify a deeper shift in confidence rather than explain it on their own.
Our findings suggest that no single set of macroeconomic variables (like inflation, interest rates and stock prices) consistently explains gold prices across developed and emerging economies. They matter sometimes, but not always.
So simple narratives (whether they're about inflation, or trade wars or the weakening of the US dollar) are not enough to account for today's gold market. Inflation alone cannot explain why gold prices remain elevated even as headline price pressures have eased.
What gold tells us about the world
There is more evidence for this in the fact that, according to the World Gold Council , central banks have been buying gold at the fastest pace in decades, particularly since 2022. This has continued even as inflation has fallen in many countries, again suggesting that these decisions are driven by longer term considerations rather than short term price movements.
The decisions of central banks reflect concerns about resilience, diversification and trust. And to those banks, gold's appeal lies squarely in the fact that it carries relatively little risk.
It is not issued by a government like fiat currencies. It cannot be created at will like paper money. And it does not depend on the credibility of any single institution.
So in a world of high public debt, geopolitical fragmentation and increasing pressure on central bank independence, gold offers stability and insurance. And its price rises when confidence in the rules governing money becomes uncertain.
That uncertainty can persist even when growth resumes or inflation falls. Seen in this light, gold's recent surge does not signal a kneejerk panic or imminent collapse.
Instead, it reflects a reassessment of long-term monetary confidence at a time when governments face difficult trade-offs between debt sustainability, political pressures and price stability.
With its current high value, gold is not predicting a specific crisis. Nor does it provide a clear forecast for inflation. But it is revealing something important about the current moment.
Markets appear less certain that the frameworks governing money, debt and policy will remain unchanged. That does not mean those systems have failed, but it does suggest their credibility is no longer taken for granted in the way it has been in the past.
Gold does not predict the future. But it does offer a window into how confident markets are about the foundations of the world's economics system.
Hafiz Muhammad Usman Rana does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
