Gold Just Hit a Record $5,600, What's Driving the Surge?

TradingKey - Gold prices "skyrocket" again, breaking through the $5,600 mark to set a new all-time high.

Following a massive 64% surge in 2025, gold has already recorded a gain of over 27% so far this year. Is such a rapid ascent a reshaping of asset pricing logic, or a sentiment-driven structural bubble?

From shifts in macro policy to escalating geopolitical tensions, and from institutional inflows to technical momentum, the surge in gold prices is the result of a convergence of multiple factors. This article will systematically analyze this gold rally across five core dimensions.

1. Short-Term Direct Drivers

The current rapid rally in gold prices can be traced back to mid-January this year. At that time, spot gold was still fluctuating around $4,600; in just nine trading days, it decisively broke through the $5,600 mark, frequently hitting new record highs.

A key turning point for this rally occurred between January 28 and 29. During this period, global safe-haven sentiment spiked, the U.S. dollar weakened significantly, and Treasury yields fell. Capital began withdrawing from sovereign bonds and money market instruments, pouring into gold in a clear "flight to safety."

As gold broke through the $5,000 technical resistance level, bearish sentiment eased significantly. Technical pressure was cleared, and investor sentiment shifted from caution to chasing the rally.

Simultaneously, after gold breached key levels, several large institutions raised their price targets, with some even calling for $6,000, further bolstering market confidence in further gains. The release of such bullish information quickly triggered inflows from quantitative models and short-term speculators, exacerbating the short-term rally and strengthening gold's overall upward structure.

2. Macro and Policy Environment

Since 2025, the Federal Reserve's policy direction has undergone a major shift. The rate-hike cycle has ended, replaced by consecutive rate cuts and a pause in quantitative tightening (QT). The overall monetary environment is trending toward easing, and coupled with ample market liquidity, real interest rates have continued to decline. This shift significantly reduces the opportunity cost of holding "non-yielding assets" like gold, providing strong fundamental support for its price appreciation.

Entering early 2026, market expectations for further Fed rate cuts intensified, particularly following the so-called "interest rate check" actions. Investors generally believe that more liquidity releases are on the horizon.

Against this backdrop, the U.S. dollar depreciated significantly in late January. The combination of a weaker dollar and falling real rates has historically been a potent catalyst for gold, and together they have created favorable conditions for the rapid ascent in gold prices.

At the same time, the U.S. government's fiscal deficit remains high and federal debt pressure continues to climb. Coupled with recent uncertainties surrounding trade and tariff policies, this has sparked concerns about an oversupply of long-term Treasuries. As market demand for long-term Treasuries becomes fragmented, some long-term capital is shifting toward assets with better safe-haven and hedging capabilities, such as gold, to mitigate potential future volatility in interest rates and inflation.

These macroeconomic factors together constitute an important policy foundation driving the current strength in gold prices.

3. Geopolitical and Systemic Risks

Amid ongoing multiple geopolitical risks globally, gold is not only sought after as a traditional safe-haven asset but also increasingly highlights its "ultimate insurance" value in extreme scenarios.

Tensions in the Middle East remain high, and the conflict in Ukraine remains unresolved. The escalation of these regional conflicts has significantly increased global market uncertainty.

Simultaneously, policy maneuvering among major economies continues to intensify, with recurring trade frictions and fluctuating tariff policies. Furthermore, interference with central bank independence in some countries has sparked market concerns, casting doubt on the stability of the fiat currency system.

In this context, gold's attribute as a "non-sovereign asset" has become increasingly attractive. Because it does not rely on the credit backing of any nation or central bank, it possesses greater independence than traditional monetary assets, making it a critical choice for global capital seeking safety and diversification.

4. Capital Flows and Structural Demand

Since 2025, the long-term capital structure of gold has strengthened significantly, providing a vital foundation for prices. In particular, global central banks have continued to be net buyers of gold, with China and India being especially active. The primary motivation is to reduce reliance on U.S. dollar assets and enhance the stability of foreign exchange reserves.

These official purchases are not only stable in scale and consistent in pace but also price-insensitive, forming a solid "floor demand" in the gold market and providing crucial support during price pullbacks.

Meanwhile, retail investors and large-scale institutional investors are also increasing their allocations to gold. Whether through physical holdings, gold coins and bars, or financial products like gold ETFs, gold is gradually transitioning from a short-term safe-haven tool to a long-term core component of asset portfolios.

Some institutions have even begun elevating gold's role from a "tactical buffer against volatility" to a "strategic core asset" for hedging against inflation, currency devaluation, and geopolitical uncertainty.

Furthermore, the precious metals sector has attracted increasing capital attention in recent years. The sharp rise in silver prices in 2025 led to a significant contraction in the gold-to-silver ratio, sparking rotational interest across the entire precious metals market. This structural shift in capital flows has not only attracted portfolio rebalancing but also drawn in substantial quantitative and trend-following funds, further strengthening gold's upward momentum and sustaining its bullish trend.

5. Speculation and Bubble Components

Notably, the renewed heat in this rally has been accompanied by a massive influx of short-term capital and retail investors. From a trading behavior standpoint, it exhibits clear trend-following characteristics.

Analysts generally point out that, in terms of sentiment logic, this rally may be driven largely by "fear of missing out" (FOMO). Investors, afraid of missing the gains, have entered the market at higher prices, further pushing gold up. However, such sentiment-driven rallies can lead to fragile trading structures in the short term, keeping the market wary of a potential future correction.

Some traders are beginning to worry that this rapid surge in gold prices may have deviated from fundamentals, showing signs of "market dislocation" or "short-term overheating." As gold continues to hit new highs and major institutions frequently raise their target ranges, speculative funds and momentum models are entering the fray, while increased leverage is exacerbating market volatility. This price-driven "self-reinforcing" pattern has been seen in several previous rapid rallies in gold's history.