When stock markets face challenges, investors often seek refuge in gold. Surprisingly, even as stocks soar to record levels, many are still flocking to the precious metal. Currently, gold is trading at an all-time high, showing an impressive 43% increase this year and a staggering 84% rise since the beginning of 2024. The stock market, meanwhile, remains robust, with the S&P 500 enjoying a 13% gain so far in 2025. Typically, gold thrives during periods of stock market downturns and economic instability, making its concurrent rally with the stock market particularly noteworthy amid the ongoing surge fueled by advancements in artificial intelligence.
Several factors contribute to this unusual trend. Geopolitical instability is one, but perhaps more pressing is the persistent inflation that continues to exceed the Federal Reserve’s 2% target, registering at 2.9% as of August. Heightened tariffs are likely to exacerbate this situation, and expectations that the Fed will relax its monetary policy have led to predictions of future inflation spikes. David Miller, Chief Investment Officer at Catalyst Funds, posits that the current environment reflects not just a safe haven appeal but is fundamentally tied to concerns about inflation and potential currency devaluation. “It’s more of an inflation and a currency debasement question that’s driving both stocks and gold,” he noted, likening the situation to the real estate market, where property values have increased significantly despite rising interest rates.
Ben McMillan, Chief Investment Officer at IDX Advisors, offers another perspective, likening the gold surge to a bond-vigilante trade. Investors appear to be expressing dissatisfaction with the value of their currency amid rising inflation. He warns that this phenomenon signals possible stagflation ahead, characterized by stagnant economic growth and high inflation.
While some analysts suggest that the simultaneous rally in stocks and gold may stem from investor optimism regarding AI and the impressive earnings generated by tech giants, uncertainties still linger. China’s intention to increase its gold reserves could also drive prices higher. Viktor Shvets, a global strategist at Macquarie Capital, connects the rally in gold to AI’s disruptive potential, predicting that technological advancements may lead to increased chaos and societal polarization. “Gold is no longer simply a hedge against inflation but a hedge against destruction,” he argues, highlighting how societal strife could further complicate economic stability.
Compounding this uncertainty is an impending government shutdown, with the federal government poised to close at midnight Wednesday unless lawmakers strike a last-minute deal. This situation only adds to the already heightened sense of volatility, giving gold yet another reason to maintain its upward trajectory amidst unprecedented times.
