-
-
Monday-Friday 8-6 CST1-800-276-6508
Gold plays a central role in economies worldwide and is frequently used as a store of value. People may turn to gold for various reasons, such as its tangibility, perceived long-term stability, or historical significance as a form of money.
While gold is a popular and valuable asset, it’s crucial that investors understand the factors that influence price fluctuations. Otherwise, a bull run, like what appeared in 2025, might seem confusing.
This page explains the main reasons behind gold price increases to help you understand what drives gold’s value higher.
The first group of drivers that lead to the price of gold increasing tends to fall under the umbrella of macroeconomic events. These events create different situations that draw investors toward gold.
Inflation
The first type of situation that increases demand and the price of gold is high inflation. When governments inflate their currencies, they inject more money into the money supply without increasing productivity.
The injection erodes the value of investor portfolios, and, in short, investors don’t like that. As a result, some individuals seek out tangible assets, such as gold, during periods of high inflation. Thus, as they demand more gold, the price rises.
Interest rates
Low interest rates can also lead to rising gold prices, though for a different reason. Investors who loan their money out through bonds, treasury bills, or other types of vehicles make a profit through the additional amounts of money they receive upon payback – the interest.
These investments do bear a certain amount of risk to the investors, though. There’s always the chance that the lessee won’t pay it back.
High interest rates offer returns that sufficiently compensate investors for the risk. However, when interest rates drop, the return no longer justifies the risk. Therefore, low or nonexistent rates push gold prices higher, as investors seek a more tangible asset to serve as a hedge.
One of the most reliable predictors of a rise in gold prices is economic uncertainty and turmoil.
Stocks, mutual funds, and even bonds rely upon their underlying economic systems for their value. During periods of economic instability, gold has historically been seen as a reliable store of value.
Thus, as things go south, investor demand for gold increases. As is usually the case, higher demand yields higher prices, and you can almost set your watch on escalating gold prices during recessions or downturns.
Several recent historical events have served to illustrate the inverse relationship between the price of gold and the economy.
Most recently, the economic shutdowns and turmoil created by the COVID-19 pandemic pushed gold to heights never seen before. During a week in August 2020, gold rose above $2,000/oz for the first time in its history, and the peak on August 6 ($2,069.28) stood as the American record for more than three years.
A bit farther back, the financial crisis of the late 2000s and early 2010s also produced a notable peak in gold’s price. In fact, the record all-time high set in September 2011 ($1,901.34/oz) would be the highest price gold achieved until the 2020 COVID record described above.
We have already discussed how rising inflation leads to higher gold prices. What is happening in that scenario, however, is the depreciation and devaluation of the currency itself.
With respect to gold, the important currency is the US dollar. The USD is the standard currency used for pricing and conducting transactions of gold around the world. The primary commodity exchange for gold trading is the Commodity Exchange (COMEX), based in New York City, which uses the U.S. dollar (USD) for its business transactions.
As a result, the fortunes of gold investors are unusually tied to the weakness or strength of the American dollar. If USD are weaker, it increases the appeal of gold to foreign investors because they are able to afford the same amount of gold for less of their own currency (or more gold for the same amount of currency).
When the US dollar strengthens, however, it becomes more expensive for foreign investors to buy their preferred yellow metal. So, demand drops, and – assuming no massive load of gold becomes lost at sea – the price goes with it.
Thus, the relationship between the US dollar and gold is an inverse one. When one goes up, the other usually comes down.
However, understand that this relationship is correlated, not causative. In other words, the dollar only influences the price of gold, rather than causing any changes to the existing supply of it or its inherent value.
The second group of factors that push gold prices higher can be categorized as geopolitical in nature. The interactions between countries and their presentations to the world can have a significant impact on how likely investors are to turn to gold.
Unrest at a national or international level is bad for business. Any kind of geopolitical conflict can destabilize economies, workforces, or the entire way of life.
For investors, few things make them more nervous than military engagements and/or outright war. Look no further than the spike in gold’s price that occurred in March 2022, two weeks after Russia invaded Ukraine.
The ongoing battle in Ukraine was joined in October 2023 with the outbreak of war in Israel. These global conflicts are believed to have contributed to the upward movement in gold prices.
However, a shift to a buying strategy doesn’t have to be military to create the same runs to gold’s safe harbor. Trade wars—especially those between superpowers like the US and China—can have a similar effect.
Gold breached above $3,400/oz for the first time in history in April 2025 and made the COVID record seem quaint. This was caused by the US declaration of a new high-tariff policy against almost every country on the planet and de facto trade war with China in early 2025.
Central banks are some of the largest financial institutions on the planet, and they have incredible resources at their disposal. However, they are not immune to the ebbs and flows of economies and often turn to gold for the same reasons as individual investors – diversification and protection of value.
Most of the world’s largest economies keep a certain amount of gold in reserve. However, at any time, one of them could decide to increase its reserves and place more metal in the vault.
Doing so can cause the price of gold to increase in a couple of ways. For one thing, the amount of money and gold that they can purchase can materially affect the amount of available gold there is in supply. As always, supply falling lower than demand leads to higher prices.
However, there is an ancillary effect of a central bank’s purchasing spree due to the public nature of its policies. Central bank actions may influence market sentiment and purchasing behavior more broadly. As a result, the already-depressed supply of gold drops further, and the aggregate demand for gold increases, both of which result in further price escalation of gold itself.
There are several countries that have adopted such policies in recent times. The World Gold Council reports the following countries have begun buying gold in great quantities:
We already talked about how central banks can buy gold in such quantities as to have a measurable effect on the available supply. However, maintaining the existing supply itself can create a price increase all on its own.
Mining gold out of the earth is not easy. Gold mines don’t produce ore forever, and there is no guarantee that the extracted ore will be of the same quality across the board.
Furthermore, even if an ore vein remains rich, it is not certain to be financially feasible to extract all of its gold. It might take more or more specialized equipment to reach it – to the point that it costs more to recover than the gold is worth.
Production costs may also escalate since extracting the gold might require the use of hazardous chemicals, notably cyanide, and require additional safeguards for anyone working on the site. Increased production costs can lead to higher front-end prices or lower supply, resulting in upward price pressure.
Mining operations are also subject to constraints due to labor shortages and environmental regulations. A miner strike or a change in ecological policy can mean that the supply of gold will decrease, and increase the price.
The supply chain may also be disrupted in the transport portion of the process. Weather delays or breakdowns of trucks and transport vehicles can cause delays or result in the outright loss of the gold supply.
All these events can make for lower available gold supplies. When that happens, gold’s price has nowhere to go but up.
Anyone who has kept a casual eye on gold in the past few years has noticed an almost meteoric rise in its price. Since gold began to be subject to market pressure in 1971, it has served as the go-to hedge against economic uncertainty and inflation.
Some of the key factors behind escalating gold prices include economic uncertainty and inflation, geopolitical conflicts, and troubles in the gold supply chain. In essence, when things go badly in the world, people run to the safe harbor gold provides to their net worths.
Given that inflation is unlikely to end completely and countries will continue to compete with one another, gold is poised to remain a viable asset class for the foreseeable future. At the very least, there are few ways to diversify your portfolio more effectively than by adding gold to the mix.
Subscribe to the JM Bullion newsletter to receive timely market updates and information on product sales and giveaways.
MAJOR PAYMENT METHODS ACCEPTED
© Copyright 2025 JM Bullion. All Rights Reserved.
