Gold prices reached top breaching the $4,000-per-ounce barrier for the first time in history on Wednesday, October 8.
The rally is fueled by economic fears, political instability and a crisis of confidence in traditional assets.
Spot gold, the immediate delivery standard, shot to a record-high of 4,036 an ounce, marking a 50% rise since the beginning of the year that has increased by far at the expense of equities.
The breakthrough is a historic turning point to the precious metal that was trading at less than 2,000 two years ago and an indication of a profound unease surrounding the global financial system.
Christopher Wong, a rate strategist at Oversea-Chinese Banking Corporation (OCBC) in Singapore stated, “This is a perfect storm for gold. The rally is being driven by political, economic, and inflation uncertainty on a global scale.”
Analysts indicate powerful combination of factors propelling the safe-haven asset to its new peak:
A major catalyst is the ongoing partial government shutdown of the United States that has already reached its second week.
The crisis has stalled some of the most important economic statistics, obscuring the Federal Reserve's position as well as creating uncertainty about the health of the world's largest economy.
It is considered that the shutdown is a direct threat to the fiscal stability of the US, making gold more appealing as a store of value.
“The rapid rise in gold prices has been supported by rising inflows into (exchange-traded funds) and central bank buying, including solid demand from China, as gold benefits from political, economic, and inflation uncertainty,” noted Taylor Nugent at National Australia Bank.
The independence of the central bank has been questioned by public pressure from President Donald Trump on the Federal Reserve to lower interest rates faster.
This, combined with the recent Fed rate cut and indications of the next cut, has undermined the U.S. dollar and made holding non-yielding assets, such as gold, less costly.
Low interest rates make gold more appealing, as returns on other dollar-based assets such as bonds are reduced.
Several geopolitical flashpoints also contributed to fueling the gold’s rally. It includes Trump’s escalating trade wars and market instability due to tariffs, recent political crisis in France, and instability in European markets.
Under these circumstances, gold’s longstanding role as a crisis hedge “gains renewed importance,” Wong noted.
A sell-off in high-tech stocks that were over-flying in the stock exchange due to sustainability of the artificial intelligence boom, has sobered equity markets.
However, a report from software firm Oracle’s cloud unveiled that profit margin was lower than anticipated as all three main indexes on Wall Street fell into the red.
With questions being posed on the establishment of an “asset bubble” valuations, investors are swapping out of risky tech shares and into gold, which is perceived as a safer investment.
Stephen Innes of SPI Asset Management stated, “In a market priced for perfection, any delay in cash flow, even a temporary one, feels like the bartender calling last call.”
The rally has been driven by sustained purchasing by central banks, especially those in emerging markets, which aim to diversify away from the US dollar.
This trend was pointed out by Goldman Sachs, which predicted that there would be strong official-sector buying. At the same time, a torrent of money has swept into gold-backed exchange-traded funds (ETFs) where investors have been pouring in and this year has seen over $64 billion invested in the sector (World Gold Council).
Retail investors are also joining in large numbers. Dealers, such as Silver Bullion, stated that the number of customers has more than doubled over the past year.
The fact that the gold has reached the 4,000 mark is not just a figure; it is a bold reminder of the shaky ground on which the world's confidence stands.
The world's oldest haven may continue to attract new visitors as long as the dangers of political instability, trade wars, and market volatility persist.