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Gold prices have surged to a record high, exceeding $4,000 (£2,985) per ounce, as investors seek refuge in safe-haven assets amidst mounting economic and political uncertainties worldwide.
The precious metal has experienced its most significant rally since the 1970s, with a rise of approximately one-third since April, coinciding with the imposition of tariffs by US President Donald Trump that have disrupted global trade dynamics.
Analysts suggest that investor apprehension is further fueled by delays in the release of crucial economic data, exacerbated by the ongoing US government shutdown, now in its second week.
Gold is widely regarded as a safe-haven investment, anticipated to maintain or increase its value during periods of market volatility or economic downturns.
Concurrently, the Bank of England (BoE) has issued a warning regarding the “stretched” valuations of AI technology companies, highlighting an escalating risk of a “sharp correction” in financial markets.
Sharemarkets in the US, UK and Europe have reached record highs recently as investors try to benefit from a rally in tech companies. A correction would be defined as a fall in these indexes of more than 10%.
The spot price of gold – reflecting the real-time market value for immediate delivery – surpassed $4,036 per ounce on Wednesday afternoon in Asia.
Gold futures, serving as an indicator of market sentiment, attained the same level on October 7th. Futures contracts represent agreements to buy or sell an asset at a predetermined date in the future.
The US government shutdown, stemming from persistent disagreements over public spending, acts as a “tailwind for gold prices,” according to Christopher Wong, a rates strategist at OCBC in Singapore.
Investors have historically sought refuge in safe-haven assets like gold during previous US government shutdowns.
Notably, gold prices rose by nearly 4% during the month-long shutdown experienced during President Trump’s initial term.
However, Mr. Wong suggests that gold prices could decline if the shutdown concludes more rapidly than anticipated by some investors.
The “unprecedented rally” in gold prices observed over the past month has exceeded analysts’ projections, notes Heng Koon How, head of markets strategy at UOB bank.
He further attributes the rise to the weakening US dollar and increased purchasing activity by retail investors.
While short-term uncertainty has triggered the current surge, the underlying strength of gold is largely attributable to central banks strategically diversifying away from US treasuries and reducing reliance on the dollar’s strength.
Central banks have collectively purchased over 1,000 tonnes of gold annually since 2022, a significant increase from the average of 481 tonnes per year between 2010 and 2021. Poland, Turkey, India, Azerbaijan, and China were prominent buyers in the past year.
Not all gold investments involve the physical precious metal.
Some investors allocate capital to financial instruments, such as exchange-traded funds (ETFs), which are backed by gold reserves.
According to the World Gold Council, a trade association, a record $64 billion has been invested in gold ETFs thus far this year.
Gregor Gregersen, founder of precious metals dealer and storage provider Silver Bullion, reports a doubling of customer numbers within the past year.
Retail investors, banks, and affluent families are increasingly turning to gold as a safeguard against global economic uncertainty, he stated.
“Gold will fall at some point, but I believe given the economic environment, it’s on an upward trend for at least five years,” Mr Gregersen said.
OCBC’s Mr. Wong suggests that gold’s value could decline in the event of interest rate hikes or a reduction in geopolitical tensions and political uncertainties.
He cites the example of April when gold prices fell by approximately 6% after President Trump refrained from dismissing Federal Reserve Chair Jerome Powell.
“Gold is often seen as a hedge against uncertainty, but the hedge can be unwound.”
In 2022, gold’s value plunged from $2,000 to $1,600 per ounce after the US central bank raised interest rates to curb inflation triggered by the Covid-19 pandemic, according to UOB’s Mr. Heng.
He adds that a key risk to gold’s current rally is a sudden resurgence in inflation, which could prompt the Federal Reserve to raise rates.
The recent climb in gold prices reflects expectations that the Fed will lower interest rates, making gold more attractive, said Mr Wong.
Meanwhile, Trump has ramped up pressure on the Fed, publicly criticising Mr Powell for not cutting rates quick enough and attempting to fire Fed Governor Lisa Cook.
The president’s targeting of the Fed can “undermine confidence in the [its] ability to act as a credible, inflation-targeting central bank,” said Mr Wong.
In such an environment, gold’s role as a hedge against uncertainty “gains renewed importance,” he said.
The UK’s central bank also raised concerns about the global tariff war and over the credibility of the Fed.
While giving UK banks a broadly clean bill of health for resilience against potential shocks, the BoE’s financial policy committee said the record concentration of stock markets on a handful of big tech companies was also a risk.
“A sudden or significant change in perceptions of Federal Reserve credibility could result in a sharp re-pricing of US dollar assets, including in US sovereign debt markets, with the potential for increased volatility, risk premia, and global spillovers,” the committee said.
The committee assesses all financial risks to the economy, and recommends whether banks should take steps to protect financial stability.
In its regular financial stability assessment, the committee identified the still soaring valuations of the world’s biggest tech companies, especially those focused on AI in the US as a concern.
The committee said that on some profit measures, it was “comparable to the peak of the dotcom bubble”, which ended in a huge crash at the turn of the millennium.
In its report, the committee said: “On a number of measures, equity market valuations appear stretched, particularly for technology companies focused on Artificial Intelligence (AI).”
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