London spot gold has surged to an all-time high above $4,600 per ounce in January 2026, capping a historic rally that saw the precious metal gain over 70% in 2025 – its strongest annual performance since 1979. The relentless upward momentum has defied market expectations, with the LBMA (PM) gold price setting 53 new record highs last year and continuing to break barriers in the new year, according to the World Gold Council’s (WGC) latest report released on January 29th.
The rally has been a global phenomenon, with prices across major markets posting spectacular gains. COMEX gold futures jumped over 70% in 2025, while Shanghai Gold Exchange’s AU999 gold surged more than 54% to near 1,000 yuan per gram. Hong Kong’s 9999 gold also climbed approximately 40% year-on-year, reaching 42,968.50 Hong Kong dollars per tael in mid-January 2026. Domestic jewelry retailers have responded to the price surge, with premium gold products now exceeding 1,700 yuan per gram in major Chinese cities.
Multi-faceted drivers fuel the rally
Analysts attribute the unprecedented price movement to a confluence of four key factors, as outlined in the WGC’s “four-factor framework”. Geopolitical tensions have emerged as the primary catalyst, with ongoing conflicts in Ukraine, Middle East unrest, and strained China-U.S. relations driving intense safe-haven demand. “Uncertainty has become the new normal, and gold’s role as a crisis hedge has never been more pronounced,” noted Cheng Wei, a precious metals investment expert.
Monetary policy shifts have further amplified the rally. The U.S. Federal Reserve implemented three interest rate cuts totaling 75 basis points in the second half of 2025, pushing the U.S. dollar index down 9.4% annually and reducing the opportunity cost of holding non-yielding gold. Real interest rate declines, coupled with persistent inflationary pressures – U.S. CPI remained at 2.7% – have reinforced gold’s appeal as an inflation hedge.
Investment demand has reached extraordinary levels, with global gold ETF holdings surging by 801 tons in 2025 – the second-strongest year on record – to a historic high of 3,932 tons. Retail investors have also joined the fray, driving bar and coin purchases to a 12-year high of 420 tons in Q4 2025 alone. Chinese investors led regional demand, with a 44% year-on-year increase in bar and coin purchases during Q2 2025, while Indian buyers maintained steady accumulation despite price volatility.
Central bank buying remained a steady pillar of support, with net purchases totaling 863 tons in 2025 – near the upper end of forecasts. Although the pace slowed from recent years, the purchases remained geographically widespread, reflecting central banks’ strategic shift toward diversifying reserves amid weakening dollar credibility.
Supply constraints and market regulation
Gold supply growth has failed to keep pace with surging demand. Mine production inched up just 1% to a record 3,672 tons in 2025, while recycling activity rose a modest 3% to 1,404 tons, surprisingly muted given the 67% price increase. This supply-demand imbalance has further exacerbated price gains.
In response to the volatile rally, major exchanges have tightened risk controls. The Chicago Mercantile Exchange (CME) Group switched to floating margin requirements for precious metals futures and raised margin standards. Domestically, the Shanghai Futures Exchange and Shanghai Gold Exchange have issued repeated risk warnings, with margin requirements for some gold futures contracts set to rise to an all-time high of 18% by January 30th.
Outlook: Bullish momentum persists
Financial institutions maintain an optimistic outlook for gold in 2026. The WGC predicts prices could climb another 15-30%, potentially breaking the $5,000 per ounce mark, supported by ongoing geopolitical risks, continued central bank purchases, and Fed rate cut expectations. Invesco’s Q3 2025 gold report highlighted that gold has outperformed equities and bonds, with a 47% year-to-date gain through September 2025.
However, experts caution against complacency. “While the fundamental drivers remain intact, the market has become detached from traditional valuations,” warned Jiang Shu, chief analyst at Shanghai Xirang Industrial. Potential risks include unexpected Fed policy shifts, easing geopolitical tensions, and profit-taking-driven corrections – evidenced by COMEX gold’s 4.45% single-day drop on the final trading day of 2025.
For investors, the gold rally underscores the asset’s enduring role in portfolio diversification. As Louise Street, senior markets analyst at the WGC, emphasized: “In a year marked by volatility and uncertainty, gold’s performance has reaffirmed its status as a global safe haven and a powerful driver of investment returns.”