Jim Luke | Commodities Fund Manager | Schroders | mail me |
Gold’s long-term fundamentals were already looking positive. By effectively rejecting the US role as reserve currency issuer, President Trump is super-charging these trends.
We have long maintained the view that long-run global geopolitical and fiscal trends have the potential to drive a very powerful bull market in gold.
Is the gold market large enough to absorb a global bid?
Geopolitically, the world has shifted from a globalising “Washington consensus” toward multi-polarity and great power rivalry. This trend has been developing for some time.
Fiscally, very high sovereign debt and long-run untenable domestic deficits (in the US, in parts of Europe, and in China) form a potent cocktail. History shows that such a mix usually ends in currency debasement, inflation and fiscal dominance. These trends already had the potential to trigger a situation in which multiple pockets of global capital simultaneously attempt to acquire gold as a “safe” monetary metal.
As we have often stated, the gold market cannot absorb such a simultaneous global bid without much higher prices. President Trump is accelerating and super-charging the potential for that global surge in demand.
Trump – cyclically stagflationary, structurally seismic
Trump’s protectionist agenda creates a cyclically stagflationary scenario as a base case. Our Economics Team estimates that the “Liberation Day” tariffs could add 2% to US inflation and reduce growth by nearly 1%. This estimate excludes the impact of any retaliatory tariffs.
As charts 1 and 2 below show, stagflation can hurt risk assets. However, it tends to support gold prices strongly.
Note: MSCI EAFE (Europe, Australasia and the Far East). Past performance is not a guide to the future and may not be repeated.
The broader context could be even more seismic. By proposing heavy tariffs based on the size of trade deficits – not on actual trade barriers – Trump makes it clear that the US no longer supports free trade but instead wants balanced trade. This stance marks the clearest rejection yet of globalisation. It also amounts to a de facto rejection of the US dollar-centric global monetary regime that has defined the world economy since Bretton Woods ended in 1971.
US dollar as a primary global reserve currency
Since then, the US dollar has served as the primary global reserve currency. It has dominated official reserves, trade, and international finance — far beyond the US share of global GDP. The dollar has underpinned an open, rules-based global trading system. It has also been supported by steadfast geopolitical alliances.
One of the most significant effects of this dollar-based system has been the recycling of dollar revenues into US dollar assets. This includes Treasuries, which are widely seen as “safe” assets and the bedrock of the global financial system. Foreign investors also hold massive amounts of US equity and private credit assets. These cumulative inflows have pushed the US net international investment position to a negative US$26 trillion — a figure President Trump referenced in his 2 April address.
You do not need a Nobel Prize in economics to see that the current tariff-based attack on global trade might trigger major repatriation flows. Investors are starting to question how “safe” dollar assets really are or whether the relative US outlook remains favourable. With so few credible alternatives, it makes common sense to expect gold to benefit substantially from such a repatriation trend.
How high could gold go?
Since breaking out in early 2024, gold prices have rallied more than US$1,000/oz. Gold had a particularly strong run through Q1 2025, with prices hitting $3,150/oz in early April. This brief note is not the place for a full analysis of gold supply and demand. However, it is worth reiterating that, in a scenario where already-strong central bank demand meets robust global investment demand, prices could rise much higher.
This increase would help balance the market by unlocking recycled supply and curbing jewellery demand. Mine supply cannot adjust quickly, even at much higher prices. Despite record-high prices, mine supply remains essentially flat compared to 2018 levels.
Gold at $5,000/oz by the end of the decade did not seem far-fetched twelve months ago. Now, it feels like a conservative estimate.
What does this mean for gold equities?
We believe that current gold prices are likely to drive the largest growth in earnings and free cash flow of any sector in the broader equity market.
Yet, investors have responded by selling passive exposure to gold equities at an unprecedented rate. In Q1 2025 alone, US$2.4 billion was withdrawn from passive gold equity products. To us, this is astonishing and highly bullish from a sentiment perspective.
No other major commodity has come close to its all-time real high, let alone exceeded it. Gold is rallying as a monetary asset – not as a commodity asset.
Meanwhile, the rest of the commodity complex (such as diesel, steel, and fossil fuel-derived consumables) continues to drive gold producers’ operating and capital costs. However, cost inflation in these areas, along with labour inflation, remains far lower than in 2021–22. With gold prices at record levels, this cost environment results in record profit margins for gold producers.
