Decoded: Aberdeen examines the causes of gold's recent rally

Why is gold valuable?

Gold is one of the world’s oldest assets, used as a means of exchange and store of value long before modern currencies emerged. Following the collapse of Bretton-Woods, gold was decoupled from major currencies such as the US Dollar and GB Pound, yet it continues to play a central role in central bank reserves and is prevalent in both institutional and retail portfolios. So why is gold valuable?

Scarcity: One of the main attractions of gold is its relative scarcity. According to the World Gold Council, just over 215,000 tonnes - around four Olympic swimming pools - have ever been mined. Unlike money, which can be ‘printed’ by governments, the global gold supply can only be increased by mining (at great expense). It is therefore more difficult to dilute its value, and it is less vulnerable to inflationary pressures.

A safe haven: Gold, silver and other precious metals are considered to be ‘safe-haven’ assets that act as a hedge against market volatility. Geopolitical instability can have a significant impact on equity, bond and certain commodity markets, such as oil. Gold is seen as a safer and less volatile asset class due to its low correlation with capital markets and the significant reserves held by central banks.

Worth its weight-ing?

Gold is already up over 15% in 2026 at time of writing, building on the momentum of last year’s rally, where gold prices rose over 60% in the year. There are several factors that have contributed to the renewed 2026 rally:

Rising geopolitical and economic uncertainty: There have been sustained geopolitical tensions in the first month of 2026. US interventions in Greenland, Venezuela and Iran have all contributed to investors rotating away from ‘riskier’ assets into gold.

Interest rate cuts:  Expectations that central banks, including the Federal Reserve, will lower interest rates have helped push investors toward gold. When interest paid on assets such as cash or government bonds falls, the opportunity cost of holding gold (and other non-interest paying assets) also reduces. Gold demand therefore tends to rise as interest rates fall. 

Central banks and de-dollarisation: Central banks, particularly in emerging markets, have accelerated efforts to diversify reserves away from the US dollar, increasing their gold holdings as a strategic hedge.

Accessibility and momentum: Alongside institutional investors and central banks, there is significant retail investor demand for gold. Quickly appreciating assets tend to provoke a certain amount of ‘FOMO’ from momentum-focused retail investors. This, combined with the increasing availability of vehicles such as gold ETFs, have supported increased gold investment from private investors.

What’s next for gold?

As with any asset rally, it is hard to call when momentum will fade. The drivers of gold’s rise are diverse, and US policy, both domestic and international, has been fickle under the Trump presidency. A cooling of geopolitical tensions or reduced interest rate volatility would likely see the rally lose steam. 

The impact of US interest rate expectations on the price of gold was clearly evident last week after the announcement of President Trump's preferred new Chair of the Federal Reserve. Gold prices fell sharply with his pick Kevin Warsh seen as less likely than other potential Fed Chairs to rapidly reduce interest rates. 

However, given the range of structural forces supporting demand, including sustained central bank purchasing, many believe that gold could still have room to run in 2026: 

Robert Minter, Director of ETF Investment Strategy, Aberdeen Investments: 

“Gold rose over 60% last year with the help of central banks. Central banks are buying to diversify the risk of holding US dollars in their foreign exchange (FX) reserves, and also in case the alarming increase in developed country sovereign debt causes a currency revaluation. 

“In the year ahead, we see potential for the gold rally to be well supported. The US holds around 80% of its FX reserves in gold, but gold accounts for only 25% of global FX reserves. For example, China holds just 8% of its FX reserves in gold, still far below the global average.” 

Important information

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance is not a guide to future results.