Gold futures surged above $4,000 a troy ounce for the first time Tuesday, extending a yearlong rally driven by expectations of Federal Reserve rate cuts, a weaker dollar, and rising demand from central banks and investors seeking refuge from political and market uncertainty.
The benchmark December contract briefly touched $4,015 before easing slightly, putting gold up more than 50 percent since January. That is the biggest yearly gain since 1979. The metal has outperformed major stock indexes and nearly doubled the gains of technology shares, marking a broad move into hard assets as confidence in traditional hedges like the dollar and Treasurys has waned.
Analysts point to a confluence of factors behind the milestone. The U.S. government shutdown has delayed key economic reports, clouding the outlook for growth and inflation. At the same time, the Federal Reserve has begun cutting rates even with inflation still above its two-percent target, a combination that investors see as undermining the dollar’s appeal and potentially reigniting price pressures. That perception of “inflationary easing” has long been associated with strong gold markets.
Global political developments have also unsettled investors. The Japanese yen weakened sharply after Sanae Takaichi’s surprise victory to lead Japan’s ruling Liberal Democratic Party on a platform of fiscal stimulus and lower interest rates. In Europe, the abrupt resignation of France’s prime minister less than a day after forming a cabinet rattled markets and pushed the euro lower, amplifying demand for safe-haven assets such as gold.
Meanwhile, central banks have been steady buyers, adding hundreds of tons of gold to reserves this year, helping the metal surpass the euro in market value as the world’s second-largest reserve asset after the dollar. Private investors have joined in: U.S. exchange-traded funds backed by physical gold recorded their largest monthly inflows on record in September, according to industry data.
The rally has lifted shares of mining companies and sparked renewed interest in retail gold sales, from Costco coin aisles to bullion dealers. One exchange-traded fund tracking miners has nearly doubled over the past 12 months.
Goldman Sachs on Monday lifted its 12-month price target to $4,900, citing continued central-bank accumulation and sustained demand from investors hedging against what it called an “inflationary easing” cycle.
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