‘Storm of volatility’ carries gold past $4,000 per ounce
A flurry of political drama across several major economies has stoked already existing fears around ballooning sovereign debt to fuel gold’s rise this year, market strategists have said, after the precious metal shot past $4,000 per troy ounce for the first time in its history on Wednesday.
Analysts said the ongoing political impasses in France and the US, and Japan’s new pro-stimulus Prime Minister have carried the price of gold past the milestone, little more than six months on from it breaching $3,000.
“The US government shutdown, ballooning federal debt and US dollar weakness have triggered a renewed flight to safety,” said John Read, senior market strategist at the World Gold Council. “While some profit-taking and short-term corrections are likely, as long as the storm of economic volatility continues, investors will seek shelter in gold.”
The latest spurt – which has seen the spot price of gold jump more than three per cent in October alone – has extended a run of astronomical gains for the yellow metal, which is now up more than 50 per cent since the start of the year and nearly double since the start of 2024.
Debt, inflation and crazy politics
Several forces – including ongoing geopolitical and trade uncertainty and growing appetite from central banks – have combined to push the gold price higher. But many analysts are pointing to countries’ ballooning debt piles and the increased likelihood that policymakers will manage them by allowing fiat currencies – meaning a national currency like the dollar or sterling – to erode in value.
“This is all about currency debasement, declining confidence in fiat currencies, a shedding of the dollar’s allure as a diversifier [and] persistently high deficits,” said Neil Wilson, UK investor strategist at Saxo Markets. “That plus a good dose of speculative momentum.”
Robin Brooks, a senior fellow at the Brookings Institution, added: “The latest rally in gold isn’t about a flight out of the dollar. It looks more like it’s a flight out of all G10 currencies, as fears of inflation and currency debasement grow.”
“It [also] suggests that markets are highly attuned to mounting debt levels and fiscal policy that’s out of control in many places” he continued.
Comments made by Jay Powell in August suggesting the Federal Reserve will enter a cycle of interest rate cuts in the US have also carried gold higher. Lower interest rates tend to act as a tailwind for the safe haven asset, which, unlike cash or bonds that generate interest, does not provide investors with a yield.
The rally has prompted several investment banks – including Goldman Sachs and Deutsche Bank – recently to raise their forecasts for the metal. In a note published on Tuesday, Goldman analysts predicted gold would rise to $4,900 per troy ounce by the end of next year, up from a previous forecast of $4,300.
“The inflows driving the 17 per cent rally since August 26 — Western ETF inflows and likely central bank buying — are sticky in our pricing framework, effectively lifting the starting point of our price forecast,” they wrote.