Costco customers, central banks, and other investors have been buying gold like it’s 1849, but analysts are struggling to understand why—or figure out when the run will end. The latest rally on Tuesday saw gold rise as high as $2,466.27 per ounce, surging past the previous record set in late May and rising over 23% from its 52-day low in February. Gold futures set an all-time high by rising above $2,740, as did the metal’s largest ETF, SPDR Gold Shares, with prices approaching the $228 mark.
View this interactive chart on Fortune.com
Gold’s big year and a half has been attributed in part to expectations the Fed would cut interest rates at least three times in 2024, as a report from J.P. Morgan noted last week. Only one such cut is now penciled in, but economists have become increasingly confident it will come in September.
Traditional fundamentals at odds with massive rally
A traditional hedge against inflation, gold’s safe-haven status and use as a long-term store of value also contributes to its appeal as a bulwark against uncertainty in the markets and geopolitical tensions. J.P. Morgan said it expects prices to climb to $2,500 per ounce by the end of 2024 and up to $2,600 in 2025.
“Amid fraying geopolitics, increased sanctioning, and de-dollarization, we observe an increased appetite to buy real assets including gold,” Gregory Shearer, head of base and precious metals strategy at J.P. Morgan, said in the report.
At the same time, though, the economic signals that typically spur a gold rally are not present, notes Rob Haworth, a senior investment strategist at U.S. Bank.
Haworth told Fortune that demand for gold is typically linked to a weaker U.S dollar, but investors are putting upward pressure on the latter. At the same time, real yields, which reflect the opportunity cost of buying gold instead of “risk-free” Treasuries, haven’t moved—and the same goes for option prices, a potential indication of whether investors are feeling risk averse.
“And so you’re left with, gold’s going up because it’s going up,” Haworth said.
Central banks diversify reserves away from U.S. dollar
One clear driver of gold prices since 2023 has been central banks, which purchased over 1,000 metric tons of gold last year, per J.P. Morgan. The People’s Bank of China went on an 18-month buying spree, its longest-ever run of purchases, that finally ended in May, a move seen as an attempt to help diversify its reserves away from the dollar and guard against currency depreciation.
The Treasury remains an important safe haven for central banks, Haworth said, but he noted the foreign-owned share of federal debt has decreased over the past seven years.
“It's not showing up in European bond markets,” Haworth said. “It's not showing up in Japanese bond markets. So it seems like it's been headed toward gold for now.”
Liquidating those reserves can be tricky, he said, if demand falls. If nobody wants your gold, you may be out of luck, whether you’re a central bank or a Costco executive member tired of holding on to all those bars.
