What’s driving the gold price? … and other important questions

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The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested. For investors in our gold exchange-traded product, if the issuer cannot pay the specified return, the proceeds from the sale of the precious metal will be used to repay investors. Investors will have no claim on the other assets of the issuer. Instruments providing exposure to commodities are generally considered to be high risk which means there is a greater risk of large fluctuations in the value of the instrument.

What’s driving the gold price?

Gold has been treasured by people across the globe for thousands of years. It’s been used as currency and for bartering, as a symbol of wealth, and more recently for its investment characteristics.

In this article, we’ll answer some of the most common questions we hear from investors.

Why have gold and silver performed so well in recent years? Why are we seeing more volatility in prices now? At these levels is gold still a diversifier?

Plus, some perennial questions: Are these assets suitable for investors with environmental or social concerns? What instruments are exposed to higher precious metals prices?

Why have precious metals risen so much in recent years?

Gold hit an all-time high of more than US$5,500 per ounce in late January 2026. Silver similarly broke above $120 per ounce. Those prices had been rising fairly steadily for several years but accelerated rapidly in January. Of course, nobody can predict the future with any certainty, but we can comment on recent activity and try to explain what we believe has been behind the phenomenal rise in this precious metal.

• Central bank purchases. Because the supply of these metals is limited, demand drives the price. In recent years there has been a surge in demand from central banks and reserve managers around the world due to the sanctions imposed by the US on the Russian central bank in 2022. Some of these central banks are now targeting a volume rather a value of holdings, which indicates that an elevated level of gold buying is likely to persist by this group. The National Bank of Poland for example recently approved plans to raise its holdings to 700 tonnes. It holds roughly 550 tonnes today.

• A weaker US dollar. The relative value of the US dollar and its position as a perceived “haven” currency can often have a material effect on the gold price. The USD weakened considerably in 2025, which made gold less expensive for non-USD investors and other consumers. This was the case for European investors recently when the EUR rose to its strongest level versus the USD in over three years.

• Geopolitical and economic uncertainty. The perception that gold tends to be relatively stable in volatile times compared to equities and other risky assets means that gold is often sought-after during periods of heightened fear and uncertainty. As investors question the haven characteristics of the USD now, some are looking to alternative assets such as gold as a means of diversifying their portfolios. Central banks, especially in emerging markets, have been buying gold to diversify their balance sheets away from USD assets while also helping them manage geopolitical and economic risks.

• China. There is a lot of talk of China demand. There does appear to be greater interest by Chinese investors but compared to the western market this space is still small. It is likely a source of future demand but not a significant player right now.

• Easy exposure. Investors can buy gold directly through the purchase of gold coins and small bars, or via physical gold exchange-traded products (ETPs). Gold held by retail and institutional investors has increased substantially in recent decades, due largely to gold-backed ETPs making it easier for them to gain exposure. The picture is very similar for silver-backed ETPs.

Why have prices been so volatile in early 2026? 

Precious metals and stocks in mining companies rallied very strongly through most of January 2026, then fell back substantially late in the month. Despite the large falls, as of 10 February 2026 these metals are still recording positive gains for the year.

• Geopolitical tensions. Heightened geopolitical tensions likely played a role in the demand for precious metals and associated instruments. The acceleration in prices at the start of the year was very rapid, which meant that many technical measures suggested that these metals were overbought. Though western futures positions did not appear crowded, we observed an increase in options activity, particularly call options late in 2025 and early 2026.

• Fed news and US dollar rally. The late January weakness in gold and silver was partially a reaction to the news that President Trump will nominate Kevin Warsh, rather than Rick Rieder, as Federal Reserve Chair. Warsh is considered a little more hawkish. Though the relationship between rates and gold has weakened in recent years, there is still some bearing there. This was further exacerbated by Microsoft earnings disappointing the market and weakness in stocks. These two pieces of news caused the USD to rally and some investors to sell the more liquid part of their portfolios including precious metals holdings.

• Tight liquidity. For silver, liquidity conditions in the London market remain tight, as some market participants highly prioritised the ability to get the physical metal. That meant lease rates had risen, a classic sign of market tightness and markets at risk of being squeezed and displaying greater volatility.

Does gold offer any protection from adverse events?

If we look at the physical gold ETP market for the past five years, we can see that investor demand was strongest during two distinct periods: in the first months of the COVID pandemic and when Russia invaded Ukraine. In both cases, there was a high amount of uncertainty and heightened volatility.

It’s important to highlight that gold doesn’t provide any actual “protection” in the sense that there are no guarantees. As with other investments, the price of gold can go down as well as up, and investors may not get back the amount invested.

However, historical evidence suggests that gold has often been able to provide a “cushion” against the downside risks that uncertainty and volatility can inflict on an equity portfolio. Gold has also tended to hold up during sudden rises in inflation or during periods of “stagflation” when an economy suffers high inflation, high unemployment and low growth all at the same time.

Over the past 50 years, gold has been one of the only asset classes that has demonstrated the tendency to move in the same direction as both the level of inflation and the change in inflation. In other words, the gold price has tended to rise when inflation is both higher than normal and rising.

Are precious metals overvalued at these levels?

Valuing financial assets typically means forecasting some form of revenue stream and then discounting those cash flows. That is not possible for gold and other precious metals, which typically cost to hold and do not generate cash flows.

Compared to assets such as oil, precious metals do look stretched versus historical ratios. But compared to many other financial assets, they do not look stretched.

Because the supply of gold and silver is relatively consistent, it is the demand for these metals that tends to move prices. And the gold, silver and platinum markets are still very small compared to equities (as shown in the chart below). So, if investors move even a small fraction from conventional asset portfolios into precious metals, it can have a large impact on the market.

We see considerable scope for private investors to diversify some of their portfolios into precious metals instruments.

Is gold an ethical investment? 

The gold mining and refining industries are focused on improving sustainability, accountability and transparency. The goal is to provide investors and consumers with more clarity and confidence that the gold they are buying has been sourced and processed according to a high set of standards.

• World Gold Council. The World Gold Council launched the Conflict-Free Gold Standard (CFGS) in 2012, putting in place processes for mining companies to guard against the risk that gold would be used to fund or support unlawful armed conflict. The CFGS has now been incorporated in the Council’s more comprehensive Responsible Gold Mining Principles, issued in 2019, for its 32 mining company members. This framework establishes what constitutes responsible gold mining.

• London Bullion Market Association. Likewise, the LBMA has a mandatory Responsible Sourcing programme for any refiner wanting to trade with the London Bullion market. The LBMA issued its Responsible Gold Guidance in 2012 and has updated the document multiple times to incorporate incrementally improving guidelines and auditing guidance around relevant issues. They continue working with mining companies to develop best practices across the industry.

• A combined framework. The World Gold Council and LBMA are now working together on a combined framework, trialling a blockchain solution for tracking gold from the mine all the way through the supply chain.

Mining is an energy-intensive process that often impacts the local ecology. While it may never be totally environmentally neutral, improvements can be made to reduce the negative impact, including having plans for restoring the ecology at the end of the mine’s lifetime. At Invesco, these environmental issues are generally high on our agenda when we engage with the senior management of the mining companies in which we have equity holdings. We seek to better understand their views and the steps they are taking to mitigate risks and reduce their carbon footprint.

Ethics extend beyond the environment, of course, and mining companies can make a positive impact on addressing socio-economic issues. Given that a productive mine may be in operation for many decades, mining companies will often help develop local housing, transportation, schools and medical infrastructure. This can have long-term material benefits for emerging economies.

Does gold have intrinsic value?

Much of gold’s value is linked to its investment characteristics and cultural significance in major jewellery markets such as India and China. However, the precious metal’s physical properties also make it valuable for use in a range of high-end technology applications, including from the medical and aerospace industries. Gold is an excellent electrical conductor, but more importantly it does not tarnish or corrode over time. Thus, its low resistance remains stable — unlike copper and silver for example.

Total demand from this sector accounts for just under 10% of annual gold demand, but the amount used has been fairly steady over the past decade, according to data published by the World Gold Council.

• Semiconductors. The electronics sector consumes around 80% of this demand, with gold a critical element in the manufacture of semiconductor chips.

• Health care. Gold nanoparticles are used in many of the diagnostic testing kits such as those relied on throughout the COVID pandemic.

What role can gold play in a portfolio?

Some investors may add a holding in gold for the same reason they invest in other assets, because they believe the price may rise. Probably a more likely reason is that investors want to diversify their portfolios or provide a possible cushion against losses in case of rising inflation, stock market volatility, economic uncertainty or geopolitical risks. Although gold offers no guarantees and can go down even when you expect it to behave differently, historically it has tended to hold up well during sharp equity market downturns.

Gold can be a useful tool for diversification because its price tends to move differently from most of the other assets in a typical portfolio. Historical evidence shows that the gold price often behaves independently from equities in particular but also bonds to a lesser extent and even a broad basket of commodities. This characteristic means gold can potentially act as a ‘cushion’ for the rest of the portfolio when other assets are falling in price.

What areas are sensitive to precious metals prices?

The most direct way to get exposure to these assets might be through an ETP that tracks the price of these metals.

For those looking to get exposure through equities, mining companies are one way to do it. These companies tend to rise and fall to a greater degree than the underlying commodity price, which means they can be more volatile. But they also have the benefit of paying dividends.

Finally, some regional equity markets, such as the UK, have a higher weight in mining companies and tend to exhibit some element of a positive relationship with precious metals prices.

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