Gold just broke another record: Is it a bubble?

Gold prices hit another record high this morning, reaching a peak of $3,046 (£2,349) just days after finally breaking the $3,000 barrier.

The price of the precious metal has roughly doubled since the start of this decade, leading many to question whether gold can continue climbing.

The rise in prices has come amid Middle East tensions escalating and US president Donald Trump kicking off fears of a global trade war, as well as a weakness in the US dollar.

“Gold does well when the outlook is unclear, especially if this is accompanied by lower real inflation-adjusted yields,” explained Tom Stevenson, investment director at Fidelity International.

One strong factor in the uptick in gold prices has been the persistence of new cash coming into gold ETFs, with holdings up nearly five million ounces since the start of the year.

February alone saw new buying of over three million ounces, the strongest monthly increase since 2020.

This rush into passive funds has been partially fuelled by a sharp rise in China, with buying up 15 per cent since the start of the year and 190 per cent since the trough in 2023.

“In spite of gold ETF inflows gaining momentum, total holdings globally are still well below the record highs reached five years ago,” noted UBS strategist Joni Teves. “This implies there is space for the trend to extend.”

Can gold keep climbing?

Despite gold prices constantly rising, analysts were overwhelmingly positive that a sharp dip was unlikely to be on the horizon.

“The underlying outlook for gold remains firmly bullish and wider market positioning is still lean,” said UBS’ Teves.

Teves expected “continued investor interest” in the precious metal as a portfolio hedge against risks of “a much more severe macroeconomic or geopolitical backdrop”.

“It’s clear that the buyers are stepping in on any displays of weakness, and unless there is an aggressive scalp to be had, gold is bull trending for a reason, and the market clearly likes the story,” added Chris Weston, head of research at Pepperstone.

In fact, asset management firm Devere Group is now forecasting that gold will hit $3,300 before the middle of the year.

“With trade wars expanding, inflationary pressures persisting, US diplomatic policy evolving, central banks’ buying, and China’s financial markets embracing bullion at an unprecedented scale, the case for higher gold prices has never been more compelling,” said Devere CEO Nigel Green.

“Concern that opportunities to enter at more attractive levels may yet again be limited this year could prompt investors to act quicker,” added Teves, noting that the fear of missing out (FOMO) is likely to rise the longer gold manages to stay above $3,000.

“This could trigger an increase in interest in the white precious metals, particularly silver and platinum, as investors look for alternative ways to express the bullish gold view and put on catch-up trades,” he said.

However, AJ Bell investment director Russ Mould noted that gold mining stocks had been failing to match the energy of the precious metal, meaning some investors might gravitate towards investing in them over gold.

The New York Stock Exchange’s Arca Gold Bugs index is currently at the same level as in April 2006, when gold traded at only $600, rather than $3,000.