When Risk-On Meets Risk-Off: Understanding Gold’s Extraordinary 2025 

The performance of gold in 2025 was nothing short of extraordinary. Rising by 64.5% over the year, gold delivered one of its strongest annual returns in decades, eclipsing even the most bullish forecasts. What makes this performance particularly striking is that it occurred in tandem with a stellar year for global equity markets. Major indices such as the S&P 500, NASDAQ 100 and the MSCI World Index all posted double-digit returns, while private capital and private equity firms continued to deploy record amounts of capital. This simultaneous rally in gold and risk assets deviates from historical norms, where gold tends to outperform in times of market stress or during periods of significant economic uncertainty, and inversely corelated to the U.S. dollar. The events of 2025 suggest that gold’s role as a financial asset is evolving, driven by a unique interplay of geopolitical instability, monetary policy concerns and shifting investor sentiment. 

Traditionally, gold has been a safe-haven asset, performing well during periods of heightened volatility or economic distress. Its resilience during the 2007-08 financial crisis, the uncertainty following the events of 9/11 and the European sovereign debt crisis cemented its reputation as a hedge against systemic risk. During these crises, gold’s negative correlation with equities and its status as a store of value made it an indispensable component of diversified portfolios. For instance, in 2008, gold delivered positive returns of more than 45% while the S&P 500 fell by 38%. Similarly, in the early 2000s, as the technology bubble burst, gold provided stability amidst widespread losses in equity markets. However, the dynamics underpinning gold’s rally in 2025 do not fit neatly into this historical framework. Rather than responding to a sharp market downturn, gold surged alongside equities and other risk assets, reflecting a more complex set of factors. 

Factors Behind 2025 Outperformance

One of the defining characteristics of 2025 was the volatility of global geopolitics. The war between Russia and Ukraine, along with heightened tensions in the Middle East, particularly between Israel and Iran, fuel uncertainty. At the same time, the United States became increasingly entangled in a series of geopolitical disputes that unsettled global markets. These events created a persistent undercurrent of anxiety across asset classes, driving demand for gold as a hedge against geopolitical risk. Despite these challenges, global equity markets proved remarkably resilient, buoyed by strong corporate earnings, particularly in the technology and defence sectors. The performance of major American corporations was a key factor in sustaining investor confidence, with many firms reporting record profits despite the broader macroeconomic turbulence. 

Another significant driver of gold’s outperformance in 2025 was the growing uncertainty surrounding the independence of the United States Federal Reserve. Throughout the year, the Fed faced unprecedented political pressure, including public threats to dismiss senior officials and legal challenges to the governance of the Fed further compounded concerns about its ability to maintain an independent monetary policy. The Federal Reserve has long been the cornerstone of global financial stability, and its credibility underpins both the value of the dollar and the functioning of international capital markets. Any erosion of this independence has profound implications for investor confidence, and in 2025, these concerns were reflected in the sustained rally in gold prices.   

This combination of geopolitical and institutional risks created a unique environment in which gold and equities could rise simultaneously. While equity markets were fuelled by strong earnings growth and speculative enthusiasm in sectors such as artificial intelligence, investors also sought protection against the longer-term risks associated with political instability and monetary policy uncertainty. The result was a rare alignment of risk-on and risk-off assets, with gold serving not just as a hedge against immediate volatility but as a safeguard against deeper structural risks in the global financial system. 

Unresolved Risks Poise Gold for Another Defining Year

As we look ahead to 2026, many of the factors that drove gold’s performance in 2025 remain unresolved. The geopolitical landscape continues to be fraught with uncertainty. The conflicts that dominated headlines last year show no signs of resolution, and new flashpoints could emerge at any moment. This persistent instability is likely to sustain demand for safe-haven assets, particularly gold, which has historically been a reliable hedge against geopolitical risk. At the same time, questions about the Federal Reserve’s independence remain at the forefront of investor concerns. The Supreme Court is expected to issue a landmark ruling on the governance of the central bank, and the potential implications for monetary policy cannot be overstated. An independent Federal Reserve has been a cornerstone of global economic stability for decades, and any perception that its autonomy is being compromised could have far-reaching consequences for the dollar and U.S. capital markets. Additionally, with Chairman Powell’s term expiring on the 15th of May, and with Kevin Warsh as the nominee for the Fed Chair, investors would be keen to see whether the institution’s independence will remain intact under his leadership. 

The events of 2025 and the outlook for 2026 suggest that gold’s role in the financial system is evolving. Its extraordinary performance last year was not merely a response to market volatility but a reflection of deeper concerns about the fragility of the global order. As geopolitical tensions persist and questions about U.S. monetary policy remain unresolved, gold is poised to play an even more critical role in the investment landscape. Its relevance is no longer confined to moments of acute crisis; instead, it serves as a barometer of investor confidence in the institutions and structures that underpin the global economy.