You know something big is happening in the world when the price of gold is not only at record highs but is also on track to have its best yearly gains in 46 years.

As 2025 draws to a close, gold broke through the $4,500 mark for the first time, and despite some pullback from a 70% surge, the precious metal is still headed for a roughly 65% annual gain.

This is the strongest yearly advance for bullion since 1979. That year, the Iranian Revolution caused a spike in oil prices, and the Soviet Union invaded Afghanistan.

Back then, demand for gold, which investors turn to as a safe haven asset and a hedge against inflation, catapulted prices from $200 an ounce in 1978 to $850 an ounce in January 1980.

Related: Every major analyst’s S&P 500 price target for 2026

Recently, with the yellow metal having scored its best gains since that period, many market commentators have drawn parallels between the late 1970s and the present day.

On the one hand, an uncertain geopolitical backdrop — Iran and Afghanistan in the past; Ukraine, the Middle East, and Venezuela today — is boosting safe haven demand.

On the other hand, there is a weakening dollar.

Just as in the late 1970s, the greenback has sharply weakened. This makes dollar-denominated gold more attractive to holders of other currencies. Through the first half of 2025, the dollar (DXY) was down 10.6% against major currencies. That is its worst first-half performance since 1973. The greenback is expected to end 2025 about 9.5% lower.

But, and that’s reassuring for gold investors, what then happened in 1980 is very unlikely to happen in 2026.

Photo by fullvalue on Getty Images

A tough Fed stamped out inflation, and gold

Between 1980 and 1982, the Federal Reserve, led by its legendary Chairman Paul Volcker, used monetary tools to lift short-term interest rates to a historic high of 20%, effectively stamping out inflation — and U.S. economic growth.

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Higher interest rates made U.S. Treasuries and assets very attractive. The dollar strengthened dramatically, and gold slumped back to about $300-$400 an ounce by 1982.

Volcker had been brought in to reverse nearly a decade of undisciplined U.S. monetary policy. This policy had seen inflation surge close to 8%, even before the 1979 oil shock.

Today, according to many market and economic observers, the Fed appears likely to do the opposite of what it did after 1979, signaling a potential policy contrast for 2026.

Sticky inflation, weak jobs and rate cuts

While inflation is not as high as it was in the late 1970s, it has proven ‘sticky,’ recently approaching 3% in early 2025 and remaining above the central bank’s 2% target, yet the Fed is shifting policy differently than it did in 1980.

Prompted by signs of a weak labor market, the Fed has cut short-term rates three times since September. Rates now range between 3.5% and 3.75%, the lowest level since 2022.

Related: Major bank issues bold gold price target for 2026

After the last move in December, Fed Chair Jerome Powell noted that the current rate is within the estimated neutral range, while the central bank will continue to observe economic developments.

Yet, according to Fed funds futures, the market still expects at least two quarter-point rate cuts next year.

These expectations partly reflect worries about the U.S. economy, which could justify further rate cuts.

Fed independence in Trump’s crosshairs

However, many observers have also noted that the Trump administration has made it clear it wants the next Fed chairman, due to replace Powell in May, to push aggressively for lower interest rates, regardless of the circumstances.

“There is no Volker-like figure in the offing,” notes Bart Melek, Global Head of Commodity Markets Strategy at TD Securities. “Instead, the [Fed] may be filled with relative doves come May 2026, who see the two percent inflation as a suggestion and not a hard target which must be reached at any cost.”

Expectations that the central bank’s independence may become compromised in May have already led to market distortions. Long-term interest rates have stayed higher than expected, even after the Fed began cutting rates in September.

“There’s nothing happening with rates going up out there that suggests concern about inflation in the long-term, or anything like that,” noted Chair Powell recently. “So why are rates going up? It has to be something else.”

Premium in bonds and in gold

BBVA Research and other analysts say long-term rates currently embed a ‘premium.’ This is due to uncertainty as the announcement of Powell’s successor approaches early next year.

Even perceived interference by the government in Fed policy-making could lead to higher long-term borrowing costs, BBVA says. This would defeat the Trump administration’s efforts to lower them.

In normal times, U.S. Treasuries are regarded as one of the safest and most reliable income-producing assets. Higher long-term Treasury yields directly compete with gold as an investment option.

But these are not normal times: According to analysts at the CPM Group, “reduced faith in the U.S. central bank’s independence already is and would continue to be very supportive of gold and silver investment demand.”

Annual gold returns then and now: 

  • 2025: 65.4%
  • 2024: 27.2%
  • 2023: 13.1%
  • 2022: -0.23%
  • 1981: -32.2%
  • 1979: 133.4%
    Source: MacroTrends.

Eric Winograd, chief U.S. economist at Alliance Bernstein, says higher inflation has often followed when central banks bend to political influence. He cites the 1970s, when the Fed followed President Nixon’s lead and cut rates. This sparked inflation that stuck throughout the rest of the decade.

If a similar scenario were to emerge in 2026, the dollar would lose some of its purchasing power and continue to slide, as investors would seek alternative assets.

“While assets like gold and cryptocurrencies are somewhat speculative, we think they would benefit if the Fed’s independence were threatened,” Winograd says. “Both are dollar alternatives and perceived to be effective inflation hedges.”

It remains to be seen which way the winds will blow for the U.S. economy and for the Fed in 2026. But one thing is for sure for gold investors: The economic and policy parallels are closer to those of the early 1970s than of 1979.

Related: Gold, silver bets shift ahead of 2026