Gold prices and economic downturns: The connection investors should understand

Key Takeaways:

• Gold prices have surpassed $2,900 per ounce in 2025, reaching record highs.
• Economic downturns prompt investors to seek gold as a safe-haven asset.
• Federal Reserve interest rate cuts contribute to rising gold prices.
• Central banks are purchasing gold at record levels, indicating strong institutional demand.
• Experts predict gold could reach $3,500 by the end of the year.

Gold Prices Soar Amid 2025 Economic Uncertainty

As the global economy faces continued uncertainty in 2025, gold prices have surged to record highs, captivating investors seeking stability. The average spot price of gold has climbed well over $2,900 per ounce, a significant leap from the $2,600 average at the year’s start.

Gold’s Appeal as a Safe Haven

“Gold investments have been pretty popular over the last few years, but since kicking off 2025, interest has jumped even more,” notes Joe Cavatoni, senior market strategist at the World Gold Council. The precious metal’s reputation for protecting against inflation and offering diversification makes it an attractive option during turbulent times.

“When money rotates out of stocks and bonds during a market crash and when it rotates out of cash during periods of inflation, it just needs a place to go,” explains Daniel Boston, founder of Preserve Gold. “It tends to gravitate towards gold and silver, as they are considered safe-haven investments.”

Ben Nadelstein, head of content at Monetary Metals, adds, “Rising gold prices can signal a shift toward more cautious investment strategies, as investors seek assets with a proven track record of preserving wealth during financial and political instability.”

The Federal Reserve’s Role

Economic downturns often prompt significant actions from the Federal Reserve, which can have a profound impact on gold prices. “When a recession occurs, the Federal Reserve takes actions that improve the price of gold,” says Brett Elliott, marketing director at the American Precious Metals Exchange (APMEX). “In recessions where the Federal Reserve cut rates—which is most of them—gold prices rose.”

With the Federal Reserve reducing rates three times last year and potential cuts projected for later this year, interest-earning investments become less appealing. This shift drives investors toward alternative assets like gold to safeguard and grow their wealth.

Central Banks Drive Demand

An unprecedented move by central banks worldwide is further fueling gold’s ascent. “Today, it’s not just the U.S. Central Bank that is buying gold,” Boston points out. “We have central banks around the world buying gold at record levels given today’s economic landscape and uncertainty. If gold even does half of what it did back in the 1980s, when only the U.S. Central Bank was buying gold, we could be at the beginning of a major run-up in the gold market.”

Predictions for Gold’s Future

Looking ahead, experts are optimistic about gold’s trajectory. “You can make an easy argument for $3,500 for gold by the end of the year,” Boston predicts. “If we get volatility in the financial markets or if inflation rears its ugly head again, this could send prices even higher.”

Cavatoni echoes this sentiment, noting that with a new presidential administration comes “uncertainty around monetary, fiscal, and trade policies.” Such uncertainty may further drive investors toward the safety of gold, potentially pushing prices even higher.

Implications for Investors

For investors eyeing gold, the current economic climate presents a compelling opportunity. Gold’s historical performance during downturns, coupled with the current surge driven by institutional demand and monetary policy, suggests the potential for continued growth.

As Nadelstein concludes, “Economic downturns often make investors reassess the fundamentals of their portfolios. Gold’s long history as a safe haven and diversifying asset can make it an attractive option during times of uncertainty.”

Aly J. Yale is a contributing writer for the Managing Your Money section for CBSNews.com, covering various personal finance topics, including investing, homebuying, loans, and more.