The price of gold has surged to unprecedented levels, exceeding $4,000 (£2,985) per ounce, as investors flock to safe-haven assets amidst growing economic and political concerns globally. This significant increase marks the most substantial rally for gold since the 1970s, with a notable rise of approximately one-third since April, coinciding with U.S. President Donald Trump’s announcement of tariffs that have sparked turmoil in international trade.
The ongoing U.S. government shutdown, now entering its second week, has further unsettled investors, particularly due to delays in the release of critical economic data. Gold is traditionally viewed as a protective investment during periods of market volatility and economic decline. On Wednesday afternoon in Asia, the price of spot gold reached over $4,036 an ounce, while gold futures mirrored this spike on October 7.
Analysts, such as Christopher Wong from OCBC Bank in Singapore, assert that the shutdown is acting as a significant factor buoying gold prices. Historically, gold has gained popularity during previous government shutdowns; for instance, it increased by nearly 4% during a month-long shutdown in Trump’s first term. However, Wong warns that if the shutdown concludes sooner than anticipated, gold prices may experience a decline.
The recent “unprecedented rally” has surpassed many analysts’ expectations, according to Heng Koon How, head of market strategy at UOB. This rise is also linked to a weakening U.S. dollar and a shift toward purchases by retail investors, who may not always buy physical gold but often opt for financial instruments like exchange-traded funds (ETFs) backed by gold. A significant $64 billion has been invested in gold ETFs this year alone, as reported by the World Gold Council.
Gregor Gregersen, founder of Silver Bullion, has witnessed a remarkable increase in customer numbers, more than doubling over the past year. He notes that retail investors, banks, and affluent families are increasingly turning to gold as a safeguard against global economic uncertainty. “Most of our clients are long-term holders,” he explains, with many storing their gold for over four years. Gregersen is optimistic about gold’s trajectory, suggesting it will remain on an upward trend for at least the next five years.
However, fluctuations in gold prices are inevitable; rates may decline in response to interest rate hikes or as geopolitical tensions and political uncertainties subside. For example, gold’s price dipped around 6% in April after Trump retracted his intention to dismiss Federal Reserve Chair Jerome Powell. “Gold is often seen as a hedge against uncertainty, but the hedge can be unwound,” Wong cautions.
Last year, the value of gold saw a dramatic drop from $2,000 to $1,600 an ounce following the Federal Reserve’s efforts to tackle inflation that arose from the Covid-19 pandemic. A potential risk to gold’s current upward trajectory is the resurgence of inflation, which could lead to another increase in interest rates by the Fed, further influencing market dynamics.
In the current environment, with Trump intensifying pressure on the Fed for more aggressive rate cuts and openly criticizing Powell, confidence in the Fed’s ability to act as an effective, inflation-targeting central bank may be compromised. In this context, gold’s positioning as a hedge against uncertainty has gained renewed relevance, highlighting its importance in today’s tumultuous economic landscape.
