Gold prices hit a record high, injecting new momentum into the precious metal’s years-long rally, amid expectations of interest rate cuts by the Federal Reserve and growing concerns about the future of central banks.
Spot gold rose as much as 0.9% to $3,508.73 an ounce, surpassing the previous high set in April, but gave back some gains in early Asian trading on Tuesday. So far this year, gold prices have climbed more than 30%, making it one of the best-performing major commodities.
After Federal Reserve Chair Jerome Powell cautiously left the door open to a rate cut, market expectations that the Fed will cut rates this month have intensified, which has further fueled the recent rise in gold prices. An important U.S. jobs report to be released this Friday may further intensify signs of a weakening labor market, thereby supporting a rate cut. This has enhanced the appeal of precious metals, as they do not pay interest.
UBS Group strategist Joni Teves said: “Investors’ increased holdings of gold, especially with the Fed’s rate cut looming, are pushing up the gold price. Our base case is that the gold price will continue to hit new highs in the coming quarters. The low interest rate environment, weak economic data, and the ongoing rise in macro uncertainty and geopolitical risks have enhanced the role of gold as a portfolio diversification tool.”
Over the past three years, both gold and its cheaper cousin, silver, have more than doubled in price. Rising risks in geopolitics, the economy and global trade have driven up demand for these time-honored safe-haven assets. This year, President Donald Trump’s escalating attacks on the Federal Reserve have become the latest cause for investor concern. Worries about the Fed’s independence could undermine confidence in the United States.
The market is awaiting a court ruling to determine whether Trump has a valid reason to remove Fed governor Lisa Cook from the central bank. Additionally, a federal appeals court said late Friday that the president illegally imposed global tariffs under the emergency law, which has increased uncertainty for US importers and also delayed the economic dividends the government had promised.
Gold last soared to a record high in April when Trump unveiled a preliminary plan to impose comprehensive tariffs on most of America’s trading partners. As the president withdrew some of the most aggressive trade proposals, safe-haven demand cooled and the price of gold soon fell back and remained largely range-bound for several months.
The space above $3,500 remains undetermined, so the market will closely monitor the price trend. The last time the gold price broke through $3,500 was during intraday trading, so we are eagerly watching whether the gold price can close above this level intraday, as this could bring some upward momentum, said Christopher Wong, an FX strategist at OCBC. “The risk of new geopolitical risks and policy uncertainties resurfacing still exists, which will be positive for gold prices.”
Meanwhile, the rally in silver has continued to outpace that of gold. So far this year, the price of silver has risen by more than 40%, and on Monday it broke through $40 per ounce for the first time since 2011. Silver is also valued for its industrial uses in clean energy technologies such as solar panels. Against this backdrop, the market is set to experience a fifth consecutive year of supply shortages, according to the Silver Institute, an industry group. A weaker dollar has also boosted the purchasing power of major consumer countries such as China and India.
Investors have been flocking to silver ETFs, with holdings increasing for the seventh consecutive month in August. This has led to a reduction in silver inventories in London and ongoing market tightness. The lease rate (which reflects the cost of borrowing silver and is typically short-term) remains at around 2%, a high level far above the near-zero normal.
Precious metal prices also received support due to concerns over possible US tariffs. Last week, silver was added to Washington’s list of critical minerals, which already included palladium.
