Gold’s Record Rally Signals Diverging Path From the 1980 Volcker Era

Gold prices are closing 2025 at unprecedented levels, underscoring a global shift in market sentiment that contrasts sharply with conditions that prevailed four decades ago. The metal pierced the $4,500-per-ounce threshold for the first time in December, capping a run that leaves bullion on track for an approximately 65% gain for the year. The advance is poised to be the strongest since 1979, when geopolitical turmoil and inflation fears last propelled gold to comparable double-digit annual gains.

The surge arrives against a complex backdrop. Investors have sought the yellow metal as a haven amid conflict in Ukraine, the Middle East and Venezuela, mirroring the safe-port behavior observed during the Iranian Revolution and the Soviet invasion of Afghanistan in the late 1970s. Simultaneously, a pronounced decline in the U.S. dollar has reinforced gold’s appeal to holders of other currencies. The U.S. Dollar Index (DXY) fell 10.6% in the first half of 2025, its steepest January-to-June slide since 1973, and is forecast to finish the year roughly 9.5% lower.

Historical Comparison and Key Differences

Parallels with 1979 are hard to ignore. Back then, gold rallied from about $200 an ounce in 1978 to $850 in early 1980 as investors confronted spiraling inflation and a weakening greenback. However, the policy response that followed—spearheaded by Federal Reserve Chair Paul Volcker—abruptly reversed the trend. From 1980 to 1982 the Fed lifted its benchmark rate to an unprecedented 20%, a move that curbed inflation, strengthened the dollar and pushed gold down to the $300–$400 range by 1982.

Market participants do not expect a similar tightening cycle in 2026. Many economists anticipate a more accommodative stance as the current Federal Reserve leadership navigates moderating growth and shifts in the labor market. The contrast is noteworthy: whereas Volcker’s mandate involved quelling nearly a decade of accelerating prices, today’s policymakers contend with an environment where inflation, while elevated at times, has retreated from earlier peaks. For historical context, detailed data on prior rate decisions are available from the Federal Reserve’s official records.

Drivers Behind the 2025 Rally

Safe-haven demand. Armed conflicts and political unrest have broadened the appeal of physical and exchange-traded gold holdings. Investors continue to favor assets seen as shielded from geopolitical shocks.

Currency dynamics. A weaker dollar makes commodities priced in the currency more affordable to buyers using euros, yen and other units, translating into additional bidding pressure for gold.

Monetary policy expectations. Futures markets indicate that traders foresee lower U.S. short-term rates, in contrast to the rapid hikes delivered in the early 1980s. That outlook reduces opportunity costs associated with holding non-yielding bullion.

Market Statistics

• Year-to-date performance: ≈65% gain
• Peak price: $4,500 per ounce
• Dollar Index H1 drop: 10.6%
• Projected full-year Dollar Index decline: 9.5%
• Largest annual gold advance since: 1979

Potential 2026 Scenarios

Forecasters caution that while a repeat of the early-1980s collapse appears unlikely, gold’s trajectory will hinge on several variables:

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1. Federal Reserve actions. Any unexpected shift toward aggressive tightening would alter real yields and could pressure gold prices, echoing—but likely not replicating—the Volcker playbook.

2. Geopolitical stability. A reduction in global tensions could dampen safe-haven flows, while an escalation would likely sustain demand.

3. Dollar direction. Continued weakness would offer ongoing support. Conversely, a turnaround in U.S. currency performance could cap further gains.

Investor Positioning

Gold’s rally has prompted asset managers to recalibrate portfolios that, until recently, leaned heavily on technology shares and other growth sectors. Several institutional funds have boosted bullion allocations, citing the metal’s historic role as a store of value during periods of currency depreciation. At the same time, some analysts warn that valuations now embed optimistic assumptions about policy and risk dynamics, leaving prices vulnerable to moderation if those expectations shift.

Still, the absence of a clear catalyst for a Volcker-style intervention remains a central pillar in most bullish outlooks. Unlike in 1980, when surging consumer prices forced a dramatic policy response, current inflation levels—though still above the Federal Reserve’s stated target—are perceived as being on a gentler trajectory. As 2026 approaches, traders will watch for signals from upcoming Federal Open Market Committee meetings and key economic releases to gauge whether that stance persists.

For now, gold’s remarkable 2025 performance underscores the metal’s sensitivity to a combination of geopolitical stress, currency movements and forward-looking monetary policy expectations. Whether the rally can extend into a new year will depend on how those elements interact in an environment that, while reminiscent of the late 1970s in certain respects, appears set on a markedly different monetary path.

Crédito da imagem: fullvalue on Getty Images