The phrase “canary in the coal mine” used to be meant literally. Coalminers would take canaries into mineshafts; if they suffocated, it signalled there were noxious fumes to be avoided. Now, it signifies early warning of severe risks.
Is the canary now in the gold mine, so to speak? Gold has been on a strong, secular uptrend for almost two decades. Gold often rallied as the dollar rose, for both hedged global risks. Gold is now rising as the US creates risk in efforts at radical domestic and global reform; US growth slows, inflation is sticky; the administration attacks the Fed and other institutions; and DXY falls.
We think the gold rally has legs even from record highs, even though it has broken from normal valuation drivers – the dollar, rates and inflation. We see no true alternative to gold as a hedge against US risks and expect central banks to keep buying gold.
During the period of “American exceptionalism”, the dollar strengthened, as foreign investors piled in to capitalise on US macro/market outperformance relative to other major economies. Looking ahead, we expect the dollar to continue softening as investors rebalance portfolios for greater exposure to other major economies and emerging markets, rather than maintain excessive concentration risk in the US.
Central Banks
There is much debate about whether EUR or RMB will take global market share and leadership from the USD. But the action is in gold, which accounts for most of the recent rise in total official reserves. Counting gold shows the reserve shift is not into EUR or RMB, but from fiat currencies into gold. In fact, gold has overtaken the euro in reserves.
Among fiat reserve currencies, EUR, RMB, JPY, GBP shares are all stable. Gains are being made by diversifier currencies like AUD, CAD, and some EM FX to raise returns on investment tranches in reserves, not so much for the “safe-asset” function of reserves.
In my view, central banks are buying gold because they see no fiat alternative to the dollar. And the portfolio shift into gold will persist as threats to the Fed join geopolitics and trade wars in boosting investment risk and policy uncertainty.
Retail investors and gold mining stocks
Despite double-digit gold returns in 2023 and 2024, ETF holdings of gold over that period actually declined. Yet following strong gold returns so far in 2025, it finally appears that the investment community is increasingly participating in gold’s rally.
Renewed interest in gold funds, as well as the rapid rise in gold prices, has also led to strong performance of gold mining stocks, with the NYSE Arca Gold Miners Index up an astounding 97% year-to-date. Greater ETF demand for gold could provide a tailwind to gold prices, and higher gold prices may provide a tailwind to gold mining stock. With further upside possible, the gold rush may have only just begun.
By Arnab Das, Global Macro Strategist at Invesco
