The metal that does nothing is suddenly saying a lot

• Gold’s 2025 rally isn’t about inflation or other traditional forces. Instead, it reflects a diminished trust in money and some rising global tension
• Gold works best as long-term insurance against systemic shocks and the devaluation of traditional currencies, not as a tactical trade or yield-generating asset
• A deliberate 5%-15% allocation to the metal suits many portfolios, although income-seekers or real-asset-heavy investors might need less.

Gold’s having a glittering year. It’s up more than 50% this year, trading above $4,000 (£3,000) an ounce for the first time ever, and commanding attention from die-hard fans and longtime sceptics alike.

For investors used to valuing assets by looking at cash flows – we’re talking stocks with earnings, bonds with coupons, and real estate with rents – gold’s rally presents a mental challenge.

Here’s an asset that produces nothing, yet delivers something everyone wants: returns.

Gold has rallied since late 2024. Source: TradingView. Past performance is not a guide to future performance.

What’s fascinating about this rally is what isn't driving it. Inflation isn’t spiraling like it was a few years ago – let alone back in the 1970s. And we’re not reliving a catastrophic financial collapse like the one in 2008. Gold’s rise looks less like panic and more like reflection: a growing unease about the monetary system itself, mixed with geopolitical friction that’s making investors rethink what “safe” really means.

So, the question is simple: is this a good time to invest in gold – or has its moment passed?

To get there, let’s put the 2025 data through Ray Dalio’s “fundamental money” lens – and see where that framework helps (and where it falls short) in today's market.

Gold has a lot going for it

The debate about gold usually devolves into a straight-up yes-or-no: you're either a gold bug or you’re not. But that misses the point. The question isn’t whether to trade gold, but what role it plays in a long-term portfolio.

Dalio’s own work suggests keeping somewhere between 5% and 15% in gold, depending on your risk tolerance and what else you own. That range isn't a bet on where the metal’s price goes next. It's about what gold does that no stock, bond, or real estate can: act as insurance.

Gold protects against three of the market’s recurring risks: currency devaluation, government overreach during crises, and systemic breakdowns. Stocks and bonds depend on someone else’s promise to pay. Gold doesn’t. It has no counterparty, no central bank, no CEO. When governments face fiscal stress, they tend to devalue, inflate, or seize assets. And gold tends to hold its ground.

Its staying power comes from three traits.

First, scarcity: there are roughly 220,000 metric tons of the metal above ground and perhaps 60,000 more beneath. So it’s limited, but not so rare that only a handful of people can hold it.

Second, durability: it doesn’t rust, rot, or decay.

And third, its curious psychological pull. Gold has shaped myths, lured explorers, and anchored monetary systems for millennia.

But its rally does come with some baggage

Gold’s still ultimately a collectible, not a productive asset. It generates no cash flows, pays no dividends, and creates no economic value beyond its role as a store of value. That makes valuing it very different from valuing a business or even an industrial metal.

Historically, gold’s price tracks three things: surprise inflation, fear (measured by equity risk premiums), and real interest rates (the cost of holding an asset that pays no yield).

By those measures, gold looks expensive right now. The gold-to-inflation ratio sits at 17.8, compared to a median of 2.9 since 1963 or 3.8 since 1971 (the year the gold standard was abandoned). Even adjusting for today’s 4% equity risk premium, models point to a fair value around 3.2 – implying that gold’s trading at five times more than its norm. The gold-to-silver ratio tells a similar story: it’s sitting at roughly 85-to-1, well outside of its historical median of 57-to-1.

But here’s the thing: gold has looked “expensive” by these metrics for most of the past decade, yet it’s quadrupled from around $1,060 per ounce at the end of 2015 to over $4,000 today. When an asset stays “overpriced” for a decade, it signals that a structural demand shift – not a bubble – may be at work.

Three factors explain gold's sustained elevation.

The rise of gold exchange-traded funds (ETFs) has made it mainstream. Buying gold no longer means securing a vault and buying in huge quantities – anyone can own it in seconds.

Trust in central banks has eroded. Years of monetary activism have pushed some investors to look outside the system for stores of value.

The US dollar’s gradual slippage as an unquestioned safe haven. That shift has allowed gold to reassert its role as the ultimate reserve asset.

The verdict: stay strategic, and don’t fall into old habits

Those big changes help explain why gold keeps defying old pricing models – and why “expensive” doesn’t automatically mean “avoid”. The more useful question is: do you have any gold at all?

Most investors don’t – and that’s getting harder to justify. Even if you remain sceptical about gold’s long-term returns (and the historical numbers do back you up), the insurance value alone warrants a strategic position. A portfolio made up primarily of stocks, bonds, and cash is, in effect, a concentrated bet that the global financial system will remain stable and cooperative, and that central banks will always keep things under control.

That bet has worked brilliantly so far – but that doesn’t mean it will work forever.

Gold’s latest rally isn’t a prophecy of doom. But it does tell you that investors are assigning a higher probability to some major risks – surprise inflation, policy blunders, geopolitical rifts, or bigger disruptions to the financial plumbing the world takes for granted.

For younger investors, the lower end of that 5% to 15% gold range makes sense. Older or more conservative folks – or anyone heavily tied to financial assets – might want to lean higher. And for those open to it, splitting that allocation between gold and bitcoin could diversify not just your portfolio, but the type of monetary insurance you hold.

That’s not to say gold’s right for everyone. If you rely on steady income, gold won’t give you that. And if you already hold lots of real assets, you may already be buffered against inflation. These aren’t deal-breakers, but they’re worth keeping in mind.

What you want to avoid is turning gold into a short-term, tactical trade. The investors who bought in 2022 look like geniuses right now, but gold is governed by mood and momentum, and those things can change direction without warning. Trading gold well requires a timing instinct most people don’t have – and usually don’t discover that they lack it until it’s too late.

The bigger question isn’t whether gold’s “moment” has passed, but whether the market’s heading into an era where gold gets more of them. If monetary stability keeps fading and geopolitics stay messy, gold will stop being a portfolio side note and become a strategic anchor.

Insurance always feels expensive – until the day you need it.

Theodora Lee Joseph is an analyst at finimize.

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