Gold prices soared to $4,000 per ounce for the first time on Tuesday, October 7th, indicating a rush of investors into alternative assets.
The current situation is marked by the US government shutdown and a political crisis in France. Spot gold prices broke through $3,970 per ounce, with the most active December futures contract on the New York market surpassing $4,000 for the first time.
The US federal government shutdown has entered its second week, causing investors to be unable to access key economic data and complicating the Federal Reserve’s assessment of the evolving situation, leading to the rise in gold prices. Traders are still assessing expectations of a 25 basis point rate cut by the Federal Reserve in October, which is seen as good news for the safe-haven asset of gold.
Analyst Nicky Shiels from trading company and precious metals refinery MKS Pamp mentioned in a report that political turmoil in France and Japan has intensified concerns about finances, driving the increase in gold prices. She also believes that retail demand, especially in Europe and Japan, as well as institutional funds, have jointly boosted this round of surging gold prices.
In France, Sebastien Lecornu resigned from the prime minister’s position, causing the Macron government’s efforts to control the fiscal deficit to fail once again. Meanwhile, the near certainty of Sanae Takaichi, the current Secretary-General of the Liberal Democratic Party, becoming the next Prime Minister of Japan. These political upheavals have bolstered the exchange rates of the US dollar against the euro and the yen (the second and third largest trading currencies globally).
This year, precious metal futures prices have risen by more than 50%, surpassing the increases during several major crises in the US, such as the COVID pandemic and the Great Recession. Since the inflation shock of 1979, gold prices have never surged as high within a year.
This is mainly attributed to US President Trump’s attempts to reshape the global trade order. As investors turn to safe-haven assets, gold prices have been driven up, disrupting growth expectations.
In March, the most active December futures contract on the New York market first broke through $3,000. Despite easing trade tensions and the recent record-breaking performance of AI-influenced stock markets in recent weeks, gold prices have continued to reach new highs.
Central banks around the world and exchange-traded funds (ETFs) backed by gold have been enthusiastic buyers, and the Federal Reserve’s rate cuts as well as expectations for further cuts in the future have added momentum to the rise in gold prices.
The White House is pressuring the Federal Reserve to further reduce interest rates. The performance of the US dollar in the first half of this year has been at its lowest level in over fifty years, prompting many investors to increase their holdings of gold to hedge against US dollar risks.
The latest round of gold price increases began in August when Federal Reserve Chairman Jerome Powell hinted that in economies with low unemployment and inflation rates above target, the central bank was prepared to start cutting interest rates.