The precious metal rallies
Gold is showing signs of life. After suffering its worst quarterly return in more than a decade amid rising yields and other pressures, gold has rebounded roughly 15% since June. However, it remains below its January all-time high (see the chart).
Gold Spot Price in U.S. Dollars
(Measured by the PHLX Gold/Silver Sector Index [XAU])
Bloomberg, calculations by Horizon, data as of 08/21/2026
Gold’s surge so far this quarter has been fueled by:
- A weakening dollar, which makes gold more attractive to foreign buyers, and
- Rising concerns over high government debt levels (including U.S government debt, which just topped $40 trillion for the first time in history) that could spike inflation and create fiscal problems
When uncertainty rises, some investors look to gold and other non-traditional assets as a hedge against volatility in stocks and bonds. One reason: Gold is its own asset class with distinct return characteristics. Unlike equities, gold doesn’t produce earnings or cash flows. Unlike fixed income, gold doesn’t generate yield and carries no default risk. As a result, gold prices often remain stable or rise when stock prices decline, potentially adding portfolio diversification benefits that can reduce overall volatility.
Of course, as we’ve seen this year, gold prices can fluctuate significantly in the short term, with the average daily volatility of gold nearly equaling stocks’ volatility. Also, gold’s lack of earnings or yield can dampen its potential to deliver long-term capital growth, especially relative to stocks and bonds.
But even investors who don’t own gold may want to pay attention to it, as its performance can reveal clues about what’s driving risk and return in the financial markets. For example, if gold rallies, the dollar weakens, and long-term interest rates rise simultaneously, it suggests investors perceive rising uncertainty and risk and are demanding greater compensation from their assets.
The upshot: Gold can be a key indicator of how market conditions will evolve, and the recent rally means it’s one we’ll be watching closely in the coming weeks.
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