Gold prices surged to a new record high as investors turned to the precious metal amid concerns over inflation and geopolitical instability. The price exceeded $3,500 per ounce in Asian trading, surpassing its previous peak in April. Since the start of 2023, its value has nearly doubled. The rally follows a weaker US dollar and moves by certain central banks to increase gold reserves while reducing holdings of US government bonds, also known as US treasuries.
Meanwhile, long-term borrowing costs in the UK, France, and Germany climbed to multiyear highs.
In the UK, 30-year government bond yields reached a 27-year high, increasing pressure on Chancellor Rachel Reeves ahead of the autumn budget. Yields, which represent the return investors earn on bonds, rise as bond prices decline.
The pound dropped by just over 1% against the dollar, while UK and European stock markets slipped. The FTSE 100 index, tracking major UK companies, lost 40 points to close at 9,156, retreating from last month's record high of 9,357.
France’s 30-year bond yields hit a 16-year peak as investors offloaded French debt. Germany’s 30-year yield rose to a 14-year high, mirroring trends in US treasuries, while Italy’s 30-year yield reached its highest level since April.
Mark Haefele, Chief Investment Officer at UBS Global Wealth Management, noted that heightened political and geopolitical risks bolster gold’s appeal, as it often performs well during periods of uncertainty. He projected that gold could reach $3,700 per ounce by June next year, with a potential surge to $4,000 if economic or geopolitical conditions worsen.
The dollar regained some strength, rising 0.5% against a basket of major currencies after hitting a five-week low on Monday, ahead of US traders returning from the Labor Day holiday.
Expectations of an interest rate cut by the Federal Reserve in September have risen, with markets pricing in a 90% chance of a quarter-point reduction. The US central bank’s independence has also come under scrutiny following repeated criticism of Chair Jerome Powell by former President Donald Trump and efforts to dismiss Fed Governor Lisa Cook.
"September has historically been harsh for markets, but this year presents deeper challenges," said Stephen Innes, Managing Partner at SPI Asset Management. "The question is whether the Fed will bend or break under pressure."
Several central banks, such as those of India, China, Turkey, and Poland, have been accumulating gold reserves. According to a June report from a European financial authority, gold surpassed the euro last year to become the world's second-largest reserve asset after the dollar.
Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, observed, "Foreign central banks' holdings of US treasuries have been declining for over a decade, while gold's share in reserves has grown. This trend highlights a broader shift toward diversification amid economic uncertainty."
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