Gold has been seemingly unstoppable since November 2022, when it hit its lowest level in the postpandemic era. Since then, the yellow metal has more than doubled in price to more than $3,400 per ounce as of this writing, close to its all-time high of $3,500 per ounce.

This price runup hasn’t gone unnoticed. UBS, RBC Capital Markets, Goldman Sachs, JP Morgan, and VanEck have all published positive research comments about gold in recent months. And DoubleLine CEO Jeffrey Gundlach recently commented in a Bloomberg interview: “I think of gold as a real asset class. It’s no longer for lunatic survivalists and wild speculators.”

Surging gold prices have been driven by two main factors. Central banks have traditionally leaned heavily on the US dollar as a reserve asset partly because of the size and strength of the US economy, as well as the belief that the creditworthiness of US Treasuries is rock-solid. With the national debt continuing to balloon, that perception has shifted a bit, and many central banks around the world have been on a quest to “de-dollarize” their reserve assets. Instead of dollars, they’ve been aggressively buying up gold.

Second, gold is traditionally viewed as a safe haven during periods of macroeconomic uncertainty. There’s been plenty of that this year, with rapid changes in tariff policy, questions about how tariffs will affect economic growth, and some signs that consumer confidence has already been waning. Geopolitical turmoil has been another reason to buy for investors seeking a port in the storm.

As a result, gold now ranks as the top-performing major asset class over the trailing 20-year period through Aug. 27, 2025, with annualized returns of 10.7%. It also ranks at the top over most other trailing periods.

Can gold’s bull run continue? It depends. Any continuation in aggressive central bank purchases and/or macroeconomic uncertainty would be positives, as would a potential decline in interest rates. Lower interest rates are typically helpful for gold prices because they reduce the opportunity cost of holding gold instead of fixed-income securities. A continued decline in the dollar could also be a tailwind, as gold has historically had a fairly strong negative correlation with the dollar.

However, those factors may not be enough to offset the potential risk now that gold is trading at such a pricey level. Academic researchers Campbell Harvey and Claude Erb have found that, over time, gold prices tend to revert to the mean. When gold is trading at elevated prices in inflation-adjusted terms, prices have often declined in subsequent periods. That happened in 1980, when steep prices were followed by a long period of sluggish returns during most of the following decade. The same pattern showed up when the real price of gold reached a peak in August 2011, which was followed by a sharp downturn from 2013 through 2015.

Given this pattern, it’s probably not the ideal time to buy gold when it’s already trading near an all-time high. The chart below plots the long-term trend in inflation-adjusted gold prices (based on price divided by CPI). The current number is more than twice the long-term average.

Another reason for caution: Gold has historically gone through extended periods of either boom or bust, as shown in the exhibits below. Some of the boom years included the late 1970s and 2001 through 2011, both periods when the gold price more than quintupled.

But the downside has been painful. For example, the price of gold fell by more than 17% per year, on average, during the period from October 1980 through February 1985.

In fact, gold’s tendency toward the extremes means that it can actually be more volatile than stocks despite its reputation as a safe haven. Over the period from 1972 through July 2025, gold has averaged a monthly standard deviation of 19.6, compared with about 15.5 for US stocks.

And in addition to extreme highs and lows, there have also been periods when gold has gone through more protracted slumps. After the price of gold started one of its declines toward the end of 1987, it continued losing ground in inflation-adjusted terms and didn’t break even again until November 2005. During the secular bull market from 1982 through 2000, when US stocks racked up annualized returns of nearly 17% per year, the price of gold saw steady declines of nearly 2% per year, on average.

This partly reflects the fact that gold isn’t a cash-generating asset. As Warren Buffett has said, it just sits there and looks at you. That can be a good thing if your main goal is maintaining purchasing power over longer periods, but not so good if you’re trying to build wealth.

While it doesn’t always generate long-term growth, the case for gold as a portfolio diversifier remains strong. Gold’s correlation coefficient of 0.03 when measured against the Morningstar US Market Index is lower than that of any other major asset class (including bonds), and well below the higher levels (in the range of 0.2 to 0.4) it reached in some previous periods.

Still, the recent runup in gold means potential risk is even higher than usual. In my opinion, it’s prudent to limit any gold exposure to 5% of the total portfolio (or less). And it’s important to keep in mind that the current bull run probably won’t last forever.