Gold's Best Year Since 1979

5 min read

Gold ended 2025 around 64% higher in dollars than it began. That is its largest annual gain since 1979. Gold's highest point of 2025 came on 26 December. In pounds the rise was more than 50%, with fresh sterling records in the final week of the year. A gain on that scale is not a story about gold. It is a story about money.

A year of milestones

The year was marked by milestones falling one after another. Gold passed a landmark round number for the first time in March, just seven months after crossing the previous one. We wrote then that milestones really measure the falling value of paper money. A new record followed in April. Another landmark fell on 8 October and another in the days before Christmas. Along the way gold set dozens of new record highs.

There were sharp falls too. Prices dropped quickly after the April record and fell by as much as 6.3% in a single day in October. Each time, buyers returned within weeks. We looked at why those falls are a normal part of a strong market in The Pullback: Why Corrections Strengthen a Bull Market.

What drove it

Central banks. The quiet buyers of the last three years did not stop. The World Gold Council reports that central banks bought 634 tonnes in the first nine months of 2025. In June the European Central Bank reported that gold had overtaken the euro to become the second largest reserve asset held by central banks, after the dollar.

Why does that matter to an ordinary saver? Central banks are the institutions that issue paper money. When they choose to hold more of their own reserves in gold rather than in other countries' currencies, they are making a quiet judgement about which kind of money they trust most over the long run. That judgement has been the same, year after year.

Interest rates. The Federal Reserve cut rates three times between September and December, to a range of 3.5% to 3.75%. It stopped shrinking its balance sheet on 1 December and began buying short-term Treasury bills again to keep the banking system supplied with reserves. The Bank of England cut Bank Rate to 3.75% on 18 December, its fourth cut of the year, with inflation still at 3.2%.

The Fed's return to buying Treasury bills deserves a word of explanation. When a central bank buys bills, it pays for them with new reserves that it creates itself. This is not the same as the vast bond buying of past crises, but the direction is the same. The amount of central bank money in the system is growing again rather than shrinking.

Lower rates matter to gold for a simple reason. Gold pays no interest. When cash in the bank earns a good return, holding gold means giving that return up. When rates fall, especially while prices are still rising, that cost shrinks and the case for holding something with no counterparty grows stronger.

Debt. American government debt passed $38 trillion in October. Moody's removed America's last AAA credit rating in May. Washington shut down for 43 days from 1 October, the longest shutdown in its history. In Britain, 30-year borrowing costs reached their highest since 1998 in September and the November Budget raised taxes by £26 billion.

The length of that shutdown is worth pausing on. The previous long shutdown, over the winter of 2018 and 2019, lasted 35 days. The Congressional Budget Office later estimated that it cost the American economy $11 billion, of which around $3 billion was never recovered. The 2025 shutdown ran more than a week longer than that.

Trust. Tariff shocks, open political pressure on the Federal Reserve and wars that did not end all pushed savers and institutions towards an asset with no issuer and no counterparty. Any one of these on its own might have been brushed aside. Coming together in a single year, they reminded people why gold has been held as money for thousands of years.

Why 1979 is the right comparison

The last time gold rose this much in a year, the world was in the grip of high inflation. The Bretton Woods link between the dollar and gold had been broken in 1971. Money was being created faster than confidence could keep up. Gold more than doubled in 1979 as savers sought protection.

The road to 1979 had been a long one. American consumer prices rose 9.6% in 1973 and 11.8% in 1974. Research based on the White House tapes of the time has shown how hard the President of the day leaned on the Federal Reserve to keep money loose before the 1972 election. The inflation that followed took the rest of the decade to deal with.

It ended only when the Fed changed course. Paul Volcker became Fed Chair in 1979. Under him the federal funds rate reached a weekly average of 15.61% and unemployment stayed above 10% for ten months. That was the price of restoring trust in the dollar. It is a reminder that once confidence in money is lost, winning it back is slow and painful.

The details are different today, but the root is the same. Governments are carrying record debts. Central banks are cutting rates while inflation is above target. The value of paper money is being managed downwards, slowly but steadily. Gold's price is the mirror in which that decline is measured.

What a strong year does not change

A gain of this size naturally raises the question of whether gold has gone too far. No one can say what the next twelve months will bring. Prices can and do fall. What we can say is that the forces behind 2025 have not gone away. Debt is still rising. Central banks are still buying. Interest rates are still being cut.

Gold has started 2026 a little below its December record, after a busy first week. For a long-term holder, the more useful measure is not one year. It is how much a pound or a dollar buys over a decade. Then compare what gold has done against it.

That longer view also guards against two common mistakes. One is buying in a rush because the price has risen. The other is selling in a panic when it falls. Neither tends to serve people well. People who understand why they hold gold and build their holding steadily are usually better placed to sit through the swings.

Holding gold in a tax-efficient way

UK legal tender gold coins such as the Britannia and the Sovereign carry a particular advantage for British savers. Gains on them are exempt from Capital Gains Tax for UK residents. After a year like 2025, with thresholds frozen until 2031 and other savings taxes rising, that exemption matters more than it has for many years.

We set out the Budget changes in The Freeze That Keeps on Taking. In short, more income is being drawn into tax each year while the rules on coins that are legal tender have stayed the same. That is why so many British buyers look at the Britannia and the Sovereign first.

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Sources

This article is for information only. The value of gold can go down as well as up.

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Gold Insights are independent articles, researched and written by our own team at Gold Tier Advisory.