Continued political tension, US dollar weakness and options market activity drove gold to its 39th all-time high in 2025
Equities on edge in October on broadening excesses. Gold likely to remain a good hedge despite its stellar run up.
Record monthly ETF inflows took gold to its 39th new high for the year, finishing the month at US$3,825/oz (+12%). Y-t-d gold is up 47%, marking the highest return in a calendar year since 1979 (Table 1).
Our Gold Return Attribution Model (GRAM) suggests political tension, strong options market activity, and currency weakness played a key role in gold’s performance last month (Chart 1). The only drag came from some rebalancing and profit-taking – captured in a gold price lag in the model and reflected in the intraday price dip on 30 September, which was quickly bought.
Gold ETF flows recorded their strongest month on record. Net inflows of US$17.3bn (146t) were dominated by North America (US$10.6bn) and Europe (US$4.4bn); Asia joined the rally (US$2.1bn) and other regions reported modest inflows. COMEX managed money net longs participated in gold’s upward price action, adding US$9bn (+33t).
Gold price and performance in key currencies*
| USD (oz) |
EUR (oz) |
JPY (g) |
GBP (oz) |
CAD (oz) |
CHF (oz) |
INR (10g) |
RMB (g) |
TRY (oz) |
AUD (oz) |
|
| September price* | 3,825 | 3,260 | 18,190 | 2,845 | 5,325 | 3,046 | 114,761 | 872 | 159,088 | 5,785 |
| September return* | 11.6% | 11.1% | 12.2% | 12.0% | 13.0% | 11.0% | 12.5% | 11.5% | 12.8% | 10.3% |
| Y-t-d return* | 46.6% | 29.4% | 37.9% | 36.5% | 41.9% | 28.7% | 51.2% | 41.6% | 72.5% | 37.2% |
| Record high price* | 3,827 | 3,263 | 18,281 | 2,849 | 5,326 | 3,050 | 114,761 | 872 | 159,107 | 5,819 |
| Record high date* | 29 Sep 2025 | 29 Sep 2025 | 29 Sep 2025 | 29 Sep 2025 | 30 Sep 2025 | 29 Sep 2025 | 30 Sep 2025 | 30 Sep 2025 | 29 Sep 2025 | 29 Sep 2025 |
*As of 30 September 2025. Based on the LBMA Gold Price PM in USD, expressed in local currencies, except for India and China where the MCX Gold Price PM and Shanghai Gold Benchmark PM are used, respectively.
Source: Bloomberg, World Gold Council
September is, on average, the worst calendar month for US stocks and October is known for big corrections, making this a generally nervous time for equity investors.
The likely threat to equities is acute, given lofty valuations, goldilocks earnings projections, high market concentration, extended positioning, and technical red flags.1
Gold is a great long-run diversifier and a good short-run hedge against equity drawdowns. But because gold is not a contractual hedge,2 the good performance during equity corrections isn’t guaranteed.
There is perhaps a concern that gold – and in the short run this means gold investors – might not respond so readily to an equity lurch, primarily because it looks overbought.
And there is probably some merit to this. Chart 2 shows that from a tactical perspective gold might struggle to find marginal investment buyers in this scenario, even as long-run strategic positioning remains light (Chart 3).
An additional concern perhaps is that other factors might conspire against gold’s performance: oversold rates or dollar, over-egged fears, and so on.
We looked at a set of these drivers during historical equity drawdowns, addressing questions such as: how does gold fare unconditionally? (Chart 4); and what if gold has already performed really well (vs 200dma), is showing extended positioning, or if the dollar is cheap or oversold at the start of the equity sell off? Do credit spreads need to blow out for gold to do well? Table 2, shows these factors grouped by initial conditions and contemporaneous changes.
What we found was that initial conditions are not great arbiters of gold’s performance during these sell offs. The only factor that really seems to matter is where the US dollar goes (Chart 5), and to a lesser extent where it sits in valuation terms prior to the sell off.
The trajectory of yields only matters if we include the volatile mid 1970s and early 1980 observations, while the level of spreads only matters if we exclude the volatile 1970s.
So, where is the dollar? Well, the bad news is that it looks almost as tactically oversold as gold is overbought; it has been dragging anchor for some time (Chart 6), which is unsurprising given the consistent dollar/gold long-run negative correlation.
The good news is that during two-thirds of the equity sell offs the dollar has fallen and has not been materially influenced by its own initial conditions. To boot, the dollar has been oversold for quite some time and there is no guarantee that a bounce will materialise just because equities drop.
Looking outside these factors, central banks have shown a propensity to buy dips over the last three years. And so, it seems, have other investors. A mini-intraday gold selloff on 30 September quickly reversed into the close. So even at these levels, there appear to be investors waiting in the wings. And there are plenty of reasons for investors to be looking at gold. Among these are:
While our analysis is only indicative, it leaves us confident that gold will hold its ground and perhaps see further uplift should equities experience a correction, given the plethora of supportive factors elsewhere. Perhaps only a major liquidity squeeze could upend both gold and equities, but there are no clear signs of fractures in credit or banking sectors…yet.
*Analysis conducted on daily data from 31 December 1971 to 25 September 2025. Drawdowns measured as window when the S&P 500 index falls from a high to more than 10% below the high.
** Steepness measured as S&P 500 return / duration.
Source: Bloomberg, World Gold Council
1Lofty US stock market valuations bank on earnings strength | Reuters
2Hedges that arise from formal contracts with a counterparty to protect against financial risk such as forwards, futures, swaps
