In a recent edition of Shares we posited the idea that gold might move towards $4,000 per ounce. Initially, the precious metal continued its year-to-date charge in the wake of this article and reached the $3,500 mark but a fragile recovery in risk appetite has put gold back around the $3,200 level.

In a recent research paper Jim Luke, lead manager of the Schroder ISF Global Gold Fund (BZ01VB5), argued that gold at $5,000 per ounce by the end of the decade ‘did not feel an outlandish scenario 12 months ago,’ adding that it ‘feels frankly conservative now’.

Obviously Luke has skin in the game here, given he invests in gold mining equities, but we were interested to get his take on why he sees prices moving higher from this point.

He tells Shares: ‘The sentiment on gold in the West right now is very much “Why would I buy now we’re at the real, inflation-adjusted all-time high from 1980, how much further can it really go?”.

‘The clearest conclusion we have is that the dominant driver of gold prices this year has been China. More broadly since 2022 the dominant demand drivers have been a combination of emerging-market central bank buying plus physical demand from Asia and the Middle East.

‘Developed-market investor participation has been very light. It’s higher this year than in 2023 and 2024, when Western investors were actually outright selling, but still very light compared to 2020 or even 2016 and a shadow of the quantum of demand we saw in the last bull market.’

Luke says sitting in London it doesn’t feel like there’s a bull market in gold – noting his fund has not been flooded with inflows despite very strong performance. He thinks this could change pretty rapidly. 

‘Can we go higher? Absolutely. Our conviction is why couldn’t you see a simultaneous global bid for gold, a global run on the metal. 

‘A situation where the Chinese are still buying, broader emerging market central banks continue to add and Western participation finally picks up – that’s a scenario where gold prices would need to move a lot higher in order to destroy jewelery demand and tease-out more recycling supply. To be honest, that’s exactly the scenario I personally think is very, very likely to occur over the balance of the decade.’

He adds: ‘The underpinnings of that view were in place long before Trump came back to the White House. They are based on long-cycle fiscal and geopolitical trends. The world was already moving towards great power rivalry and moving away from US unipolarity.  At the same time, very high debt burdens and fiscal deficits were already becoming problematic in developed economies.’

Luke believes the Trump administration is accelerating these trends and believes the need for China to diversify out of dollar assets ‘is very easy to understand’.

Yet Luke also notes gold equity valuations are low by historical standards, adding: ‘You have record cash flows driven by record gold prices and yet depressed valuations. We think that will change. That valuation gap, when it closes, will close violently.

‘Many things can catalyse an improvement in western participation but I think one of the really large catalysts will be when or if the Federal Reserve is again required to intervene in treasury markets to stabilise the long-end of the yield curve.’

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