Bullion climbed as much as 0.4% to US$4,001.11 an ounce on Wednesday. It’s a milestone moment for the metal that traded below US$2,000 just two years ago, with returns that now well outstrip those for equities this century.
Gold has jumped more than 50% this year in the face of uncertainties over global trade, the Federal Reserve’s independence and fiscal stability in the US. At the same time, geopolitical tensions have boosted demand for haven assets, while central banks have continued to buy gold at an elevated pace.
The price surge has taken on extra urgency as investors seek protection from potential market shocks following the government funding impasse in Washington. The start of the Fed’s monetary easing cycle has also been a boon for gold, which doesn’t bear interest.
Investors have responded by piling into exchange-traded funds, with bullion-backed ETFs seeing their biggest monthly inflow in more than three years in September.
“Gold breaking US$4,000 isn’t just about fear – it’s about reallocation,” said Charu Chanana, a strategist at Saxo Capital Markets Pte. “With economic data on pause and rate cuts on the horizon, real yields are easing, while AI-heavy equities look stretched. Central banks built the base for this rally, but retail and ETFs are now driving the next leg.”
Jumps in the price of gold typically track broader economic and political stresses. The metal breached US$1,000 an ounce in the aftermath of the financial crisis, US$2,000 during the Covid pandemic, and US$3,000 as the Trump administration’s tariff plans washed over global markets in March.
The precious metal has now broken past US$4,000 against the backdrop of, among other things, US President Donald Trump’s assault on the Fed, including threats against chair Jerome Powell and a push to oust governor Lisa Cook, the clearest test so far of the US central bank’s autonomy.
A pliant Fed that would lower rates and spur higher inflation could set up a Goldilocks situation for non interest-bearing gold. Bullion is seen as an inflation hedge and is usually weighed down by high borrowing costs, which make cash or bonds more appealing.
“We expect gold to reach a cyclical peak when there is greatest market concern about the outlook for Fed independence,” Macquarie Bank Ltd. analysts wrote in a Sept 30 note. “In the event, however, that a compromised Fed were to make clear policy errors, gold’s performance should of course be even stronger.”
Gold’s rally is on pace for its best annual performance since the 1970s, a decade when rapid inflation and the end of the gold standard sparked a 15-fold rally of the precious metal. At that time, then-president Richard Nixon pressured the Fed to lower rates.
The central bank under then-chair Arthur Burns made only “limited efforts” to maintain independence and ultimately enabled volatile inflation for “political reasons,” according to a recent court submission from various monetary policy luminaries.
“The reason that investors are buying gold – and should be buying gold – is because of its diversification qualities,” said Stephen Miller, an investment strategy advisor at GSFM.
“That sentiment is in its early stages, and gold will get increasing acceptance as part and parcel of prudent investing behaviour,” he said, adding he could see prices reaching US$4,500 by the middle of next year.
Central banks have been a key driver of bullion’s rally, flipping from net sellers to net buyers following the global financial crisis. The pace of buying doubled after the US and its allies froze Russia’s foreign-exchange reserves in 2022 following the full-scale invasion of Ukraine.
That pushed many central banks to consider diversifying, while inflation and speculation that the American government would treat foreign creditors less favorably further highlighted bullion’s appeal to policymakers.