Beyond Bubbles: Gold’s New Safety Role

By Doug Young – 10 December 2025

Introduction

Gold prices have surged more than 60% year-to-date in 2025, marking the strongest annual performance since 1979 and pushing spot prices above $4,000 per ounce.

The Bank for International Settlements (BIS), the central bank for central banks, issued a rare warning on December 8, 2025, flagging gold alongside U.S. equities as entering “bubble territory”—the first such synchronized alert in 50 years.

This analysis explores whether the rally reflects speculative excess or fundamental shifts redefining gold’s role as a safe-haven asset amid evolving global risks.

BIS Bubble Warning Explained

Key Indicators Cited

The BIS highlighted gold’s 60% rise in 2025—over 150% since 2022—fueled by post-COVID inflation and geopolitical events like the Russia-Ukraine war.

Exchange-traded fund (ETF) shares traded at premiums to their net asset values (NAVs), indicating retail speculation and barriers to arbitrage.

The report noted “explosive behavior” in both gold and the S&P 500, particularly tied to AI-driven stock valuations, raising concerns about market fragility.

BIS Context and Broader Risks

This marks the BIS’s first bubble alert in half a century, describing a “double bubble” scenario.

Officials warned of self-reinforcing price dynamics, performative risk management, and correlated unwinds that could amplify losses when liquidity tightens.

Counterarguments: Not a Classic Bubble

Buyer Motives and Channels

Analysts argue gold lacks hallmarks of manias, such as ETF holdings reaching prior peaks or explosive surges in gold miner stocks.

Unlike speculative frenzies, gold draws buyers for its scarcity, broad acceptance, and position outside financial liability chains, rather than promises of a “new era.”

Decoupling from Traditional Models

Gold has risen even as real yields—adjusted for inflation—remained firm post-2022, breaking the long-held inverse relationship.

This suggests gold now hedges against political risks and counterparty vulnerabilities, extending beyond its traditional inflation-hedge role.

Central Bank Buying as Structural Driver

2025 Purchase Data

Central banks added a net 244 tonnes of gold in the first quarter of 2025, down 21% from 2024 but 25% above the five-year average; purchases rebounded to 19 tonnes in August.

This follows 1,044 tonnes in 2024—the third-highest on record—and marks the 16th consecutive year of net buying, far exceeding the 2010-2021 average of 473 tonnes.

Strategic Motivations

Institutions cite reserve diversification, resilience to sanctions, and holdings in non-cancellable assets amid de-dollarization trends.

Central banks control about 35,500 tonnes, or 17% of all gold ever mined, providing market stability through their long-term orientation.

Year	Net Purchases (tonnes)	Notes
2022	1,136	Record high
2023	1,050.8	Near record
2024	1,044.6	Third-highest
2025 Q1	244	Above average

Geopolitical and Macro Factors

Redefining ‘Safe’ Assets

Geopolitical tensions have constrained access to reserves, elevating neutrality over pure liquidity in asset selection—qualities sovereign liabilities cannot uniformly provide.

A weaker U.S. dollar, down 10% year-to-date, and expectations of Federal Reserve easing further bolster prices.

Cyclical vs. Structural Forces

Cyclical factors include growth fears, dollar fluctuations, and momentum trading, while structural ones encompass sovereign risks and ongoing geopolitical stress.

Unlike the 1979 peak—when the U.S. was a net creditor with lighter debt burdens—today’s environment features record U.S. debtor status, structural deficits, lower policy rates, and reduced tolerance for prolonged tightening.

Historical Context and Market Implications

1979 Comparison

The 1979 rally stemmed from temporary inflation distortions, resolved by Federal Reserve Chair Paul Volcker’s aggressive rate hikes that restored credibility through economic pain.

Current conditions, with higher leverage and entrenched fiscal challenges, differ markedly and may sustain gold demand differently.

Potential Outcomes

Rapid advances can correct sharply if cyclical flows reverse or proxies like ETFs become crowded, though structural supports may limit downside.

The BIS emphasizes distinguishing physical bullion from leveraged financial instruments vulnerable to liquidity strains.

Conclusion: Evolving Role of Gold

Gold’s trajectory reflects a repricing of systemic credibility in an era of heightened adversarial risks, prompting debate over the durability of its drivers.

Financial decisions require review of multiple sources and consultation with qualified professionals.

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