The only thing that could cause gold prices to fall

Gold has seen significant progress this year, consistently reaching new highs and setting a new record high in September. Meanwhile, investors and central banks alike piled in, treating the precious metal as a hedge against geopolitical and economic risks. But despite the strength of the rally, experts warn that a sudden shift in the economic backdrop could send prices falling again.

“The single biggest risk I see for gold to keep prices at their current level is a sudden stabilization and re-strength of the US dollar,” says Brandon Aversano, CEO of The Alloy Market. This could quickly cool demand and push prices lower as confidence shifts back to the currency. Other risks include sudden shifts in Federal Reserve policy and easing inflation – but that doesn’t mean gold can’t still play a crucial role in diversifying your investment portfolio.

Why are gold prices so high?

Gold prices have risen more than 40% this year, reaching highs of more than $4,000 an ounce in November. Aversano attributes this economic uncertainty as the main driver of higher gold prices, with concerns about the strength of the US dollar and other currencies also contributing to the trend. He says investors and governments alike view the metal as an asset that will hold its value — if not rise — when economic uncertainty rises. During the 2008 financial crisis, for example, gold prices rose 4.3% despite falling prices among almost all assets except government bonds.

The increased demand is another boon for gold. “In times of political and economic uncertainty, not only do consumers invest in tangible assets like gold as a hedge, so do central banks,” Aversano says, noting that central banks have been buying gold at unprecedented rates. China and the United States, for example, have imported record amounts in recent years, tightening supply and raising prices.

Why can gold be vulnerable?

Despite its momentum, gold’s rally is not guaranteed to last. Aversano warns that a rise in the value of the US dollar, which has fallen by about 10% this year, would put immediate pressure on prices. Since gold is priced in dollars, confidence in the currency can shift demand away from the metal, just as a lack of confidence can drive demand.

Federal Reserve policy may also be a turning point. “A sudden shift in Fed policy, including significant interest rate cuts, would create demand from investors and consumers around risk assets rather than safe-haven assets like gold,” Aversano says. Although he notes that rapid changes in monetary policy are “fairly rare,” Aversano warns that we could see a faster-than-expected easing of the Fed rate in 2026.

Another risk is that inflation will stabilize and currency values ​​will become less volatile. This would similarly increase investor appetite for other asset classes, putting downward pressure on the prices of gold and potentially other precious metals, such as silver and platinum.

Diversification among safe havens

Even if prices fall, Aversano stresses gold’s staying power. “Gold will continue to serve as a strong safe-haven asset over time,” he says, noting that its appeal extends beyond investing in industrial uses and jewellery, creating steady demand for assets in limited supply.

But this does not mean that investors should treat gold as their only safety net. Aversano points out that although its case is strong in the long term, deflation is inevitable. Government bonds, defensive stocks and real estate are other assets that help protect against broader market uncertainty. Ultimately, a balanced portfolio that includes gold – but does not rely solely on it – is the best defense.

Gold has benefited from years of uncertainty, but the same conditions that sent it higher could be reversing. A strengthening dollar, interest rate cuts by the Federal Reserve, or easing inflation could drain demand.

However, their scarcity and widespread demand keep them central to most diversification strategies. To reap the full benefits of safe-haven assets, investors should view them as one part of a broader strategy — valuable, but not infallible.