Why is gold hitting record highs?

Gold prices rose to a new record on Tuesday, climbing 0.9% at $3,866.90 per ounce as of 0501 GMT, and were on track for their strongest month in 14 years. The metal has risen 12.1% so far in September and is on track for its best month since August 2011 if current momentum holds.

Mounting concerns over a potential U.S. government shutdown have fuelled demand for the safe-haven metal. Expectations of further U.S. interest rate cuts added to that demand.

“The looming government shutdown creates a haze of uncertainty over the market, which has served to accelerate gold’s gains,” said KCM Trade Chief Market Analyst Tim Waterer.

“The $4,000 level now seems a viable year-end target for gold whilst market dynamics such as lower interest rates and ongoing geopolitical hotspots keep working in favour of the precious metal.”

Meanwhile, U.S. President Donald Trump and his Democratic opponents made little headway during a White House meeting aimed at averting a government shutdown that could disrupt a wide range of services as early as Wednesday.

Gold’s best year in decades

Bullion is setting fresh records in 2025, making it gold’s best year in decades. The metal is now firmly on track for its best annual performance since 1979. That was the year when the revolution in Tehran sent shockwaves through the global economy.

Why is there so much demand for gold?

Gold is acting as a safe haven and store of value, a role it has played for thousands of years. This dates back to the kingdom of Lydia, which minted the first gold coins in the sixth century BC.

Investors are often quick to retreat from risk, and today there are plenty of reasons to move money out of riskier assets – from fears of a global economic slowdown to rising geopolitical tensions between Russia and NATO.

In addition to the usual valuation drivers such as interest rates, the dollar, and inflation, analysts see more forces at play. They point to other pressures that are also influencing gold. They say concerns over Donald Trump’s attacks on the US central bank and his trade war are pushing gold higher. His tax and spending plans are also adding to the upward pressure.

Why can’t other metals compete with gold?

Gold’s appeal as a store of value comes in partly from its scarcity. The World Gold Council estimates that if all the gold ever mined was melted into a single cube, it would measure just 22 metres on each side.

Annual supply is rising by an estimated 1.7%. As Stephen Innes, managing partner at SPI Asset Management says “no policy, no discovery, no quantitative easing of geology” can debase gold.

This rarity makes gold attractive when investors fear governments are losing control of public finances. It also appeals when governments seem unwilling to raise taxes or unable to cut spending.

In contrast, copper can’t act as a store of value because vast quantities are consumed each year. Its demand is determined by the health of the global economy.

Platinum and palladium also fall short. Even at prices above $1,000 an ounce, new supplies are quickly absorbed by industry.

Has gold hit its peak?

Gold has soared 45% since 1 January, reaching a record $3,831 per ounce on Monday. That outpaces every other major asset class this year.

The metal hasn’t seen such strong gains since 1979, when prices skyrocketed 126% as Iran’s revolution sent oil prices higher and crushed investors’ hopes of bringing inflation under control.

Data from Bank of America (BofA) on Friday shows that $5.6bn poured into gold last week, with record inflows of $17.6 billion over the past four weeks.

BofA warns that while gold may be tactically “overbought”, it remains structurally “under owned”, representing just 0.4% of private client assets under management. The bank is maintaining a long position on gold, signalling expectations of further price gains.

Analysts predict that gold has further to rise. Arnab Das, global macro strategist at Invesco, says the gold rally still “has legs”.

“We see no true alternative to gold as a hedge against US risks and expect central banks to keep buying gold … In my view, central banks are buying gold because they see no fiat alternative to the dollar,” Das says.

Who is buying gold?

According to the World Gold Council, recent gains in gold prices have been driven by western investors and speculators.

Two key factors are behind this trend. First, signs of a slowing US economy suggest the Federal Reserve may cut interest rates further, lowering returns on cash reserves. This makes gold, which offers no yield, more attractive

The second reason is increased rhetoric from the Trump administration against the Fed’s independence is leading to concerns about the stability of the US dollar and the Treasuries market.

Central banks have also been adding to their gold reserves in recent years, especially China. Bloomberg reported this week that China plans to act as custodian of foreign sovereign gold reserves.
The goal is to strengthen China’s position in the global bullion market. It also aims to reduce dependence on the dollar and western hubs like the US, the UK, and Switzerland

The Trump factor

Overall, markets have not been badly affected by the jump in US tariffs this year.These tariffs are at their highest level since the 1930s. But the trade war has taken a clear toll on the US dollar.

M&G fund manager Eva Sun-Wai said at the M&G’s Bond Vigilantes forum last week that this has led to a “broader de-dollarization trend, which has caused angst in markets”.

“And I think it’s a big reason why gold, for example, has become the safe haven choice,” Sun-Wai added, noting that investors turn to gold when they prefer to avoid the dollar or exposure to interest rate risks when holding bonds.

The U.S. dollar is having a tough 2025, down more than 9% so far this year. The drop comes amid worries over Fed independence and trade war tensions. This, in turn, pushes up gold’s value when measured in dollars.

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