How is the movement of gold determined, and how can you wisely incorporate it into your investment portfolio?

Gold—formed billions of years before the birth of Earth amidst cataclysmic cosmic explosions—is one of the most precious metals on the planet. This holds not only in a physical sense but also from a monetary perspective. On April 14, gold was trading at $4,835 per ounce—a price 60 times higher than that of silver!

Today, the demand for gold stems primarily from investment (~40%), jewelry (~31%), purchases by central banks to safeguard their foreign exchange reserves (~17%), and, to a lesser extent, industrial applications (~6%).

**Increased Investment in Gold**
Interestingly, having surged from a level of nearly 0% in the early 2000s, investment channeled through Exchange Traded Funds (ETFs)—as opposed to physical investment in gold bars or coins—now accounts for 40% of the total investment inflow into gold. This clearly indicates that the participation of both retail and institutional investors in the gold market has increased.

Gold's performance has been spectacular. Over the past three years, its price has risen 2.5-fold, outpacing every other major financial asset. Nevertheless, during the first month of the US-Iran conflict, its price plummeted by 17%, and it currently remains down by 8%. What accounts for this volatility?

**How ​​Gold Prices Rise**
Gold, widely regarded as a "safe-haven investment," typically sees its price appreciate when economic and geopolitical uncertainties intensify. In April 2025, following the shockwaves caused by tariffs imposed by Trump, the price of gold surged by 12% in a single week. Yet, despite geopolitical tensions currently at their peak due to the ongoing conflict between the US and Iran, gold prices have declined. Why is this the case? The answer lies in interest rates.

Oil and gas prices have skyrocketed by over 50%, thereby heightening the risk of rising inflation and compelling central banks to either raise interest rates or delay any planned rate cuts. Unfortunately, high interest rates increase the cost of holding assets—such as gold—that generate no income. This adversely impacts both the demand for gold and its valuation.

**The Relationship Between Inflation and Gold**
Given that gold is widely regarded as a hedge against inflation, shouldn't its price be rising right now as the risk of inflation increases? However, historically, the relationship between inflation and gold has been somewhat complex. The reason for this is that when inflation rises, interest rates typically rise as well. High interest rates tend to be detrimental to gold. Often, this negative impact is so significant that it completely nullifies any increase in demand for gold that might otherwise have resulted from inflation. This is precisely what is happening at the present moment.

Furthermore, a major misconception regarding gold is that it serves as a hedge against inflation. Analysts often point out that gold has preserved its purchasing power over the long term—relative to commodities like oil or cars—but the performance of virtually any other asset class that generates solid returns, including equities, has been no different.

It is not a true hedge against inflation; rather, it simply implies that the returns generated exceed the rate of inflation. A genuine inflation-hedging asset is one whose value appreciates during inflationary periods, thereby safeguarding the value of your holdings precisely when such protection is needed most. Unfortunately, data from the past two decades reveal that the correlation between gold and inflation has been nearly zero, suggesting that there is no systematic relationship between the two.

**Shifts in Gold Demand and Valuation**
However, a significant structural shift is currently underway, which is altering both the demand for gold and its valuation. When the United States froze $300 billion in Russian assets in 2022, it significantly accelerated the pre-existing trend of "de-dollarization"—the global movement to reduce reliance on the U.S. dollar.

Disclaimer: This content has been sourced and edited from TV9. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.