Gold’s price climbed past US$4,000 an ounce Tuesday for the first time in history, driven by a weaker dollar, growing expectations for more Federal Reserve rate cuts, and fresh demand from central banks and investors seeking a hedge against mounting geopolitical and economic uncertainty.
Financial contracts on the Commodity Exchange (COMEX) were trading around US$4,005 an ounce after breaking the US$4,000 mark, up roughly 0.7% on the day and more than 50% year to date, the metal’s strongest calendar-year gain since 1979. Prices have been propelled this year as the U.S. Dollar Index fell about 10% and investors sought assets viewed as stores of value amid policy and trade turmoil.
“Gold is the one asset that does very well when the typical parts of your portfolio go down,” Bridgewater Associates founder Ray Dalio told NBC News Tuesday, recommending that investors allocate “something like 15%” of their portfolios to the metal.
The latest increase in gold’s price followed the Federal Reserve’s rate cut
The latest increase in gold’s price followed the Federal Reserve’s September rate cut and market expectations for two additional reductions before year’s end; the federal funds rate currently stands at 4% to 4.25%. The central bank next meets Oct. 29.
Central banks, including buyers in China, and retail investors have rushed into gold, with the World Gold Council reporting record quarterly inflows into gold-backed exchange-traded funds. Global ETF inflows jumped to US$26 billion for the three months ending in September, the council said, while average daily trading volumes surged.
Analysts and strategists pointed to a mix of factors behind the increase, including a softer dollar, fading appeal of short-term debt after the Fed cut rates, as well as concerns about the independence of the Fed amid political pressure. “If Fed independence fears are realized, it could diminish confidence in treasuries and rapidly increase anxiety about debt debasement,” JPMorgan analysts warned in a recent note, adding that further rotations into gold could push prices even higher.
Goldman Sachs reiterated gold as a top recommendation
Wall Street’s tone was broadly bullish even as some cautioned about a pullback. Goldman Sachs reiterated gold as a top long recommendation, while the Bank of America warned Monday that the market faced “uptrend exhaustion” and that a consolidation or correction was possible in the fourth quarter.
Gold has also benefited from central-bank diversification away from U.S. Treasury’s following sanctions and geopolitical fractures, and from retail buyers seeking protection against stubborn inflation.
Still, strategists urged caution. Bank of America and other banks said strong momentum could give way to profit-taking or a pause in the rally. “There are scenarios where a correction is likely,” Bank of America analysts wrote, even as they acknowledged the metal’s robust run.