Investing.com -- The gold market has seen a significant price increase, with gains of 21% in 2024 and 32% over the past year. This strong performance has positioned gold as one of the few major asset classes to reach new all-time highs.

While other commodities, including precious metals like silver and platinum, have struggled, palladium has seen significant declines.

Unlike previous gold bull markets, this rally is occurring under unique circumstances, raising the question of what factors could potentially halt its upward trajectory.

To understand what might disrupt this bull market, it's essential to first understand the factors driving gold prices higher. Analysts at Gavekal Research have identified several key factors that distinguish this market from its predecessors.

One of the primary drivers is geopolitical tension. The freezing of Russia's foreign currency reserves in 2022 has made Western bonds less appealing to non-democratic countries. As a result, gold has become a more attractive alternative for central banks.

Adding to this is the issue of runaway budget deficits in major economies like the US, UK, and France. The pandemic exacerbated these fiscal shortfalls, and they have remained stubbornly high.

“Fiscal shortfalls soared generally in the pandemic, but they have stayed stubbornly high in the likes of the US, UK and France, which must worry any long-term minded investor,” the analysts said.

The current political climate in the US is also contributing to gold’s rise. The ongoing election cycle is building anxiety among investors, as both major political parties propose policies that could further destabilize the economy.

Proposals for increased tariffs, price controls, and large subsidies are seen as potential triggers for economic mismanagement, prompting investors to turn to gold as a hedge.

Meanwhile, emerging market demand continues to play a crucial role in supporting gold prices. Physical demand for gold is largely driven by countries like China, India, Saudi Arabia, and Russia, which have shown remarkable resilience despite global market volatility.

“While most Western investors look at gold as a hedge against currency debasement, or runaway government spending, or even geopolitical strife, the main driver of gold prices tends to come from emerging economies,” the analysts said.

Potential risks to the Gold bull market

Despite the strong foundation supporting the current gold rally, several factors could potentially halt or reverse this trend.

One possible risk is a decline in economic dynamics in emerging markets. A sharp decrease in trade or growth in these regions could weaken the demand for gold.

However, given the current strength of trade surpluses and economic stability in these regions, this scenario seems unlikely in the near term.

Another potential disruptor to the gold market could be the discovery of new, large-scale gold deposits. Increased supply from such discoveries could lower prices. However, the gold mining industry is currently struggling to find new deposits, making this scenario unlikely.

A collapse in energy prices could also affect the gold market. Lower energy costs would reduce the operational expenses of gold mining, potentially increasing production and driving prices down. Yet, there are few indications that energy prices will collapse anytime soon.

The Federal Reserve's monetary policy plays a critical role in influencing gold prices. A more hawkish stance, such as delaying interest rate cuts, could strengthen the US dollar and weaken gold. Conversely, a dovish approach, like continuing current interest rates, can support gold prices.

The Japanese yen's value relative to the US dollar also impacts gold prices. A strengthening yen could lead to lower gold prices, while a weakening yen can support higher gold prices.

Another factor that could impact the gold market is a rotation to other precious metals. With the performance gap between gold and metals like platinum, investors and jewelers might begin shifting demand away from gold toward these undervalued alternatives. This shift could limit further gains in gold prices.

A strong rally in the US dollar, driven by an unexpected improvement in the US fiscal situation, could also undermine gold’s appeal as a hedge against currency debasement. However, given the current political environment in the US, such an outcome seems unlikely.

Finally, high gold prices might encourage retail investors to liquidate their gold holdings. In countries like India, where private gold holdings are significant, this could increase supply and put downward pressure on prices. However, it’s also possible that these investors might prefer to sell other assets, such as equities, instead of their gold.

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