The Soaring Price of Gold

Introduction

Historically, gold has served as a vital hedge to preserve value against currency devaluation.

• Since the beginning of 2025, gold prices have surged, reaching a record-breaking profit margin of 65% by October 2025.
• While the overarching upward trend has turned gold into an exciting investment opportunity, it remains accompanied by cautionary warnings regarding potential market corrections.

The Value of Gold

For centuries, gold has been culturally recognized as a premier store of wealth due to its aesthetic appeal and scarcity.

• Unlike base metals like iron, gold is chemically inert and does not corrode over time.
• Beyond its use in jewelry due to its malleability, it is indispensable in the electronics industry for its high conductivity.

A look at historical trends shows that while gold experiences short-term volatility, its value generally trends upward over the long term.

Market Trends and Geopolitics

Current market sentiment suggests that gold prices will continue to climb through 2026, driven by geopolitical conflicts and a weakening US economy burdened by a high debt-to-GDP ratio.

• This surge has created anxiety among non-investors, who fear gold may eventually become too expensive to afford even as jewelry.

Several key events have influenced this trajectory:

• In April 2025, the Donald Trump administration introduced global tariffs intended to boost the domestic economy.
• By January 2026, US foreign policy shifts regarding global oil reserves have further unsettled markets.
• Faced with a weakening US dollar, many central banks are aggressively accumulating gold reserves while divesting from US Treasury bonds. As of late 2025, central banks held more gold than US Treasuries for the first time in 30 years.

Like fiat currency, the price of gold is a reflection of perceived societal value.

• With constant demand and a lack of large-scale liquidations, the price has maintained a steady upward momentum.

Cautionary Perspectives

Despite the prominent bullish trend, some analysts caution that public overoptimism could lead to a significant correction.

• They point to the 2011-2015 bear market as a sobering example, during which gold lost nearly 45% of its value and took nearly nine years to fully recover its previous peak.

Unlike stocks, gold does not generate dividends or active profit; its worth is purely based on what the next person is willing to pay.

• This "unrealized gain" only becomes a tangible profit once the asset is sold.
• Consequently, the market is always balanced by traders selling to secure net profits.
• Furthermore, there is a psychological element for long-term holders: the fear of "selling too early" often keeps investors locked in, even as prices peak.

Reality Check at 31 January 2026

On January 29, 2026, gold prices reached a spectacular high, breaking the RM 700 mark. This surge was fueled by a sentiment of "irrational exuberance", where the fear of missing out (FOMO) drove prices to unsustainable levels.

• Historically, when the general public perceives an asset - be it gold or real estate - as a "sure bet", a correction becomes imminent.
• For current holders and "chasers", a psychological trap emerges: the temptation to hold for easy gains often outweighs the discipline to secure profits before the bubble bursts.

The nomination of Kevin Warsh as Chair of the Federal Reserve by Donald Trump triggered an unprecedented crash, with gold dropping nearly RM 100 within 24 hours. This reaction stems from Warsh’s reputation as a "dollar hawk" (someone who prioritizes a strong currency and fights inflation).

• Panic-selling ensued as institutional investors raced to lock in profits before the USD strengthened further.
• With equity markets also declining, gold lost its status as a "safe haven" and behaved instead like a volatile commodity sold off to cover losses elsewhere.
• This made the price collapse fundamentally logical.

In reality, recent gold highs were driven by the risk premium associated with the Trump administration’s aggressive tariff policies and geopolitical tensions surrounding Venezuela and Greenland. Gold thrives on uncertainty.

• The future of gold now hinges on a specific condition: if and only if these geopolitical risks subside and Kevin Warsh pivots away from low-interest-rate policies to fight inflation, investors will likely rotate capital out of gold and back into profit-driven stock and bond markets.

While a strong USD is traditionally sensible, the U.S. is currently constrained by massive sovereign debt.

• President Trump’s seemingly "absurd" policies - exiting the WHO to cut costs, implementing tariffs to boost revenue, and advocating for a weaker dollar to stimulate exports - all aim to address this fiscal reality.
• Despite the public perception that the U.S. is on the decline while other currencies gain ground, this week’s volatility provides a sobering lesson: even a wounded tiger is still a tiger.
• The U.S. dollar's ability to disrupt global markets remains unparalleled.

Summary

If market volatility persists and geopolitical tensions remain high, gold will likely remain the preferred hedge for many.

• However, while the price may continue to soar, investors must remain vigilant - especially those entering the market at its peak.
• Those who acquired gold prior to the mid-2025 surge are better protected and may choose to hold their positions without concern for short-term fluctuations.