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Gold is currently experiencing a rally for the ages, with the price surge already surpassing its forecasted ceilings for 2026. However, as Wayne Gordon, the head of Investment Advice, Distribution and Research in APAC at UBS, noted on Monocle radio this week, the forces driving today’s “gold mania” are distinct and structural.

“It has been a tremendous rally in gold. In fact, it’s one of the strongest that we have seen in the metal on a year-to-date basis since about 1979,” Gordon told Monocle Radio’s Tom Edwards. While the upswing in the 1970s was largely driven by inflation, the current ascent is fundamentally tied to geopolitics. “The reasons we’re here today started to build at the beginning of the Russia-Ukraine conflict, when we saw a significant shift in the way that banks viewed holding US dollar-denominated reserves,” adds Gordon. “Central banks have continued to buy large amounts of gold since.”

The power of two buyers: central banks and ETFs
The price of gold has continued to rise, even with the strengthening US dollar and increased interest rates. This unusual resilience was due to the “level of influence that central banks have had on the price of gold,” says Gordon.

What’s new this year, he adds, is that “a reversal of nearly three years of outflows from exchange-traded funds” has amplified the rally. “At the start of the year, we thought there would be about 400 to 450 metric tonnes of inflows into ETF funds,” he says. “Now we expect that number to be approximately 800 tonnes.”

This combination of renewed investor interest and geopolitical uncertainty has driven prices up roughly 50 per cent year to date. “We think that ongoing political risks, as well as potential further weakness in the US dollar, can lift gold prices even higher,” says Gordon. UBS now has a target of around $4,200 (€3,613) per ounce.

How much gold should investors hold?
Gordon says that a mid-single-digit allocation makes sense for most portfolios. “Historically, we have seen that somewhere between 5 to 10 per cent allocation to gold has improved the overall volatility of your portfolio,” he says. “It has protected your portfolio to some degree from more material drawdowns.” He adds that gold still plays a vital role even at higher prices. “There’s no counterparty risk and no credit risk to gold. It is insulated from significant moves in currency.”

This interview has been edited for length and clarity. Listen to the full, detailed conversation on ‘The Bulletin with UBS’ on Monocle Radio.