Safe-Haven Surge
The price of gold surged past $3,500 (£2,614) an ounce on Tuesday, setting a new record as investors turned to the precious metal to shield against rising inflation, political instability and market volatility. The rally marks nearly a doubling in gold’s value since early 2023, driven by weakening confidence in the US dollar and increased central bank demand for bullion over government bonds.
Countries including India, China, Turkey and Poland have boosted gold reserves in recent months. According to the European Central Bank, gold surpassed the euro last year to become the world’s second-largest reserve asset after the dollar. Analysts expect the trend to continue, with Indian pension funds now seeking approval to invest in gold ETFs despite the record price.
Bond Yields and Currency Pressures
The surge in gold came as government borrowing costs spiked across Europe. UK 30-year gilt yields rose to their highest level in 27 years, putting pressure on Chancellor Rachel Reeves ahead of her autumn budget. France’s long-term bond yields reached a 16-year peak, while Germany’s climbed to a 14-year high. Italy also recorded its steepest rise since April.
Meanwhile, the pound slipped 1.2% to $1.338, its sharpest daily fall since April, after Donald Trump announced new tariffs against US trading partners. Equity markets followed suit, with the FTSE 100 losing 0.7% and major European indices sliding. Wall Street mirrored the downturn after reopening from the Labor Day holiday.
Fed Independence and Dollar Strain
The US dollar, which hit a five-week low on Monday, regained 0.5% against a basket of currencies on Tuesday. However, selling pressure persists as markets price in a 90% chance of an interest rate cut at the Federal Reserve’s September meeting. Concerns over the Fed’s independence are mounting amid President Trump’s criticism of Jerome Powell and his attempts to dismiss Fed governor Lisa Cook.
“September has always been a cruel month for markets, but this one carries more than seasonality,” said Stephen Innes of SPI Asset Management. “It carries the question of whether the Fed bends or breaks.”
Forecasts for Gold and Silver
Mark Haefele, chief investment officer at UBS Global Wealth Management, predicted gold could rise to $3,700 by next June, with $4,000 possible if geopolitical or economic conditions worsen. Silver has also climbed to its highest level since 2011, with analysts noting the gold-to-silver ratio remains above its historical range of 60-80, suggesting silver may have greater upside.
“The shift from US treasuries into gold has accelerated this year amid debt concerns, downgrades and trade tensions,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “Both metals still have room to run.”
