Gold to glitter past $4,000 after year of political jitters
In a year defined by geopolitical turmoil, gold has not stopped glittering.
The yellow metal started the year near $2669 and has since soared to $3900 – a rise of over 45 per cent.
The asset now looks set to cross the $4,000 landmark for the first time with the latest rally triggered by the US government shutdown.
The precious metal is considered a safe haven asset for investors as its value is insulated from political instability.
The asset is not easily devalued as currency is if the government chooses to print more and it is not tied to performance of a specific company.
Instead, gold prices often move inversely to stocks and other financial assets.
“Gold’s ascent reflects geopolitics and fragmentation of the global financial system, particularly as it seems trust in the almighty greenback and Treasuries is being fundamentally questioned,” said Neil Wilson, UK investor strategist at Saxo.
The dollar has had a tumultuous year – falling to historic lows in the aftermath of President Donald Trump’s tariff offensive.
As the US government went into a shutdown after Trump failed to secure the votes for a federal funding package earlier this week, the dollar took a hit. The DXY index – which tracks the dollar against a basket of currencies – fell 0.14 per cent to 97.59 on Thursday morning.
The downturn helped fuel gold’s rally to $3,800 and days later $3,900.
Gold’s September run
In the third quarter alone, gold has risen 15 per cent.
Goldman Sachs Research analyst Linda Thomas said this fell in line with the central bank’s purchasing plan.
Central banks have purchased 64 tonnes of gold per month this year – below forecasts of 80 tonnes.
“This is consistent with the seasonal pattern,” Thomas said.
“Central bank purchases tend to slow in the summer and re-accelerate from September.”
But analysts are warning the yellow metal may be due for some pullback even after the gleaming performance.
“This is not to suggest that gold can’t go higher, just that it may need a pullback or period of consolidation first,” Fawad Razaqzada, market analyst at Forex, said.
“Despite this, there’s a growing feeling of FOMO amongst investors, even as the retail market has yet to get involved in the way it has done during previous bull runs.”
Razaqzada added the factors benefitting gold were “likely to persist” into the final quarter of the year.
Gold bounces on Fed cuts
Another factor driving the yellow metal’s rally is the Federal Reserve’s gradual reduction of interest rates.
Razaqzada said much of whether gold can “sustain its momentum or whether it will reach and move beyond $4,000” will depend on US monetary policy.
He added a faster rate of cuts would “accelerate the rally, while a firmer stance could take some of the shine off”.
Markets are currently pricing in a 99 per cent chance of a 25 basis point cut, according to the FedWatch tool by CME.
Whilst the yellow metal is not directly pegged to Fed cuts, the reductions make interest-bearing assets less attractive. Gold – a non-yielding asset – thus comes back into favour due to its lack of a yield and is no longer at a disadvantage compared to low-interest savings and bonds.