Review of the three rounds of gold price increase cycle: How is gold priced?

Since the start of the third round of the upward cycle in 2019, the current rise in gold prices has lasted for 6 years, with a cumulative increase of 219%. Although there is still room for growth compared to the highest increases in the previous two rounds, the current valuation level has sparked widespread market attention regarding future trends.

On October 20, 2025, the COMEX gold and London spot gold prices closed at $4,374 per ounce and $4,294 per ounce, respectively, with cumulative increases of 66% and 63% for the year. Although gold prices fluctuated sideways after a sharp drop following October 21, as of November 10, gold prices had only decreased by about 5% from their peak, remaining in a historically high range.

Recently, Dongfang Caifu Securities, in its latest research report, reviewed the three rounds of gold price increases, stating that the sustained rise in gold prices is mainly supported by three attributes. In terms of monetary attributes, the depreciation of the US dollar relative to gold has approached 100%, but the stabilization of the dollar index in October may suppress gold prices; in terms of commodity attributes, central bank gold purchasing demand has grown at an average annual rate of 44% from 2020 to 2024; in terms of financial attributes, the traditional negative correlation between real interest rates and gold prices has partially failed in a high-inflation environment.

Regarding the potential for gold prices to continue rising, the institution believes that geopolitical risks, growth in gold reserves, and changes in real interest rates are the three key variables of this cycle, and these factors will determine whether gold prices can maintain their upward trend.

Historical Cycle Review: The Third Round of Increase Still Has Room

The report states that since 1968, gold has experienced three rounds of upward trends.

The first round of increase lasted from 1970 to 1980, lasting 10 years, with a maximum increase of 2,323%, mainly driven by the collapse of the Bretton Woods system, the reshaping of the US dollar credit system, the oil crisis, and the Cold War among major powers.

The second round of increase lasted from 2001 to 2012, lasting 11 years, with a maximum increase of 599%, driven mainly by the burst of the internet bubble, the financial crisis, the European debt crisis, and the rapid rise of emerging economies.

The current upward trend began in 2019 and has lasted for 6 years, with a cumulative increase of 219%.

Compared to the previous two rounds, the duration of this round of increase is about half that of the previous two, and the increase is relatively moderate. From both a temporal and spatial perspective, this round of gold price increase still has room for continuation compared to historical peaks.

Monetary Attributes: Challenges to the US Dollar Credit System

The report indicates that the ratio of gold prices to M2 is currently slightly above the long-term average level, reflecting that gold prices may be relatively fully priced but have not yet reached historical highs.

Since 1970, the depreciation of the US dollar relative to gold has approached 100%, with a depreciation of about 35% in 2025. The continuous expansion of the US fiscal deficit and the ongoing increase in the money supply accelerate currency depreciation and drive the revaluation of goldThe US dollar index and gold prices show a clear negative correlation. Since 2025, the US dollar index has cumulatively declined by nearly 10 percentage points, which is favorable for the rise in gold prices. However, since October, the US dollar index has shown a clear trend of stabilizing after a decline, which may be unfavorable for further increases in gold prices.

The report points out that the tense economic and political situation exacerbates the challenges to the credibility of the US dollar. Influenced by factors such as Trump's tariff policies and increasing domestic bipartisan divisions, the uncertainty index of US economic policy has continued to rise since the beginning of 2025, soaring from around 100 points at the beginning of the year to over 400 in April.

Globally, the proportion of US dollar reserves has shown a continuous downward trend, decreasing from nearly 80% in 1970 to about 60% currently. Each round of decline in the proportion of US dollar reserves has been accompanied by a significant rise in gold prices.

In addition, stablecoins and other digital assets may impact traditional fiat currency markets, further challenging the global status of the US dollar, a trend that may support the continuation of the gold bull market.

Commodity Attributes: Surge in Central Bank Gold Purchases and Investment Demand

The report states that the overall trend of gold supply is relatively stable and grows slowly. Due to the relatively long mining cycle of gold, it is difficult to make significant supply changes in response to price fluctuations in the short term, resulting in relatively low price supply elasticity.

Significant changes have occurred on the demand side. The proportion of jewelry demand has dropped from about 50% before 2020 to 32% in the first three quarters of 2025.

Central bank gold purchase demand has significantly increased since 2020, rising from 255 tons to 1,089 tons in 2024, with an average annual growth rate of 44%, and the demand proportion has increased from 5% to 22%. As of September 2025, the global gold reserve proportion has risen to about 29%.

From the perspective of representative economies, the gold reserve proportions are 50% for Europe, 77% for Italy, 78% for France, and 8% for China, all at their highest levels since 2020, and this growth trend continues, becoming an important driving force for the rise in gold prices.

Investment demand also shows strong performance. The proportion of investment demand reached 38% in 2020 and 42% in the first three quarters of 2025, setting a new recordSince the beginning of 2025, the net holdings of gold ETFs have increased by 170 tons, rising by about 20%; the total value of holdings has grown by over $60 billion, an increase of more than 80%. As of September 23, 2025, non-commercial long positions in COMEX gold futures have increased by 14% compared to the beginning of the year, with long positions accounting for 83%.

Financial Attributes: Partial Failure of the Interest Rate Pricing Framework

The report states that for a long time, real interest rates have been negatively correlated with gold prices, and this inverse relationship explains part of the reason for the rise in gold prices since 2000. Since 2008, global quantitative easing and zero interest rate policies have caused real yields to fall into negative territory.

However, since 2021, the negative pricing relationship between real interest rates and gold has gradually weakened. High inflation may distort real interest rates themselves, enhancing gold's anti-inflation risk pricing attributes, thereby weakening the pricing ability of interest rates on gold.

At the beginning of 2022, following the outbreak of the Russia-Ukraine conflict, persistent high inflation and the reshaping of global supply chains prompted the Federal Reserve to initiate 11 rounds of interest rate hikes, significantly raising real yields from deep negative values.

From the perspective of relative valuation of stocks, the ratio of the S&P 500 to gold prices is approaching the average level since 1971, reflecting that gold prices relative to the S&P 500 may have been fully valued, but there is still some distance from the highs of the previous two upcycle periods.

Three Key Variables of This Cycle

The report states that by comparing macro indicators during three gold upcycle periods, this cycle presents three significant abnormal indicators that will determine the future trend of gold prices.

In terms of geopolitical risk, the geopolitical risk index has accumulated a 72% increase during this cycle, which is roughly in line with the overall growth of the previous cycle and even approaches the values during the 2008 global financial crisis.

Since 2020, major issues such as the COVID-19 pandemic, the Russia-Ukraine conflict, and trade sanctions have significantly raised the geopolitical risk index. As of October 31, 2025, the consumer confidence index has decreased by 41% compared to January 2019In terms of gold reserves, the strategic accumulation of gold by global central banks has become a key difference from the previous two rounds of gold price increases.

The global gold reserve ratio has increased by 167% during this round of price increase cycle, with a 23% increase this year, while the previous cycle only saw a 6% increase.

According to data from the World Gold Council, the total net gold purchases by global central banks reached 634 tons in the first three quarters of 2025, slightly lower than the high values of the past three years, but still significantly higher than the average level before 2022.

In terms of real interest rates, during the previous two rounds of gold price increase cycles, real interest rates were in a slightly positive or slightly negative range, and were in a long-term downward trend.

In this round, real interest rates have increased by 213%, which is related to the low interest rate and high inflation environment since 2020, and also confirms the failure of the interest rate pricing framework during this period. Until the end of 2024, when the Federal Reserve begins to lower interest rates, real interest rates will decline but remain at relatively high levels