Going for gold: Economic uncertainty, other factors fuel price of precious metal to record highs

Gold prices surged to a record high of more than $4,000 an ounce on Wednesday, as investors sought a traditionally safe investment amid rising U.S. debt and economic and political uncertainty around the globe.

Gold soared to about $4,075 because of a mix of factors, including the federal funding lapse and expectations of another interest-rate cut from the Federal Reserve.

Analysts also pointed to political uncertainty in France and Japan, the weakening of the U.S. dollar and gold purchases by retail investors and central banks around the globe.

The rising U.S. debt is another “concern for people around the world,” said Josh Hendrickson, an associate professor of economics at the University of Mississippi.

“People expect that the U.S. will pay back its debt, but the question is how much will be repaid in real terms, adjusted for inflation,” he said. “These concerns — as well as increasing use of U.S. dollar-based sanctions — have been a motivating factor behind diversification away from U.S. Treasury securities and into things like gold. As it has become evident that there are no short- to medium-term plans to reduce the debt, this has accelerated gold buying.”

Gold is often viewed as a safe-haven asset in times of uncertainty. For instance, gold prices surged exponentially in the 1970s due to geopolitical instability and the oil crisis.

The latest surge can be seen as a sign that investors do not fully trust governmental and financial institutions.

“Rising long-term bond yields reflect waning confidence in fiscal and monetary policy, driving investors toward tangible stores of value like gold,” Paul Wong, a market strategist at Sprott Asset Management, wrote Tuesday in his precious metals report.

A U.S. government shutdown entered its second week on Wednesday, and investors haven’t been able to receive official economic data, such as the monthly jobs report.

The Fed is expected to cut interest rates at its late-October meeting, making assets like gold more attractive. The CME Fedwatch monitor says there is a 95% probability of a cut of 250 basis points, or 0.25%.

Gold prices stood at $3,677 one month ago and kicked off October at $3,897, before breaking the $4,000 mark this week.

Steve Hanke, a professor of applied economics at Johns Hopkins University, predicted that gold would peak at $6,000 per ounce.

“It is clear that we are in the middle of a bull market. It has a ways to go,” he said.

The White House pushed back on the idea that investors are fleeing the American economy for safe havens like gold, saying the market and economy remain broadly resilient.

An administration official pointed to higher gold demand in increasingly prosperous countries like India and China, and noted that major U.S. stock indexes recently hit record highs.

The gold rush fueled a running joke on social media, where users said that gold is mentioned in the Bible 400 times, but “value stocks” and “Nvidia” — the market-moving chipmaker — are not mentioned at all.

Some analysts think the run on gold is a bit of a self-propelling frenzy, with investors seeing the trend and experiencing FOMO, or “fear of missing out.”

UBS Global Wealth Management, in a recent analysis, said gold “remains an effective portfolio diversifier and hedge against political and economic risks.”

“We expect gold to benefit from lower real interest rates, a weaker dollar, robust central bank demand, and investor concerns about rising government debt levels, the potential for financial repression and ongoing geopolitical risks,” analysts wrote.

President Trump, who has decked out the Oval Office in gold during his second term, ensured Americans in August that he would not impose import taxes on the precious metal from Switzerland or other countries.

“Gold will not be Tariffed!” he wrote on Truth Social.

Mr. Hendrickson said Mr. Trump’s aggressive tariff policy is a factor in the movement toward gold, since the president is motivated by his attempt to sell more U.S. products abroad and close trade deficits with other countries.

“For this to work, the dollar will have to depreciate. We have already seen the dollar depreciate, and to some extent, the rising price of gold is the other side of that coin,” given the existing supply of the precious metal and demand for it, according to the professor.

Mr. Hendrickson said the administration also set up a “permission structure” for people to turn to gold and bitcoin as they reset global trade.

“The administration really wants to keep the dollar as the center of global trade and international finance. However, they want to do this by minimizing the costs of the system while also maintaining the benefits,” he said. “The administration would therefore prefer that if people are going to substitute away from the dollar and U.S. Treasury securities, that they do so by purchasing neutral assets – those that are not exclusively produced by another sovereign country – like bitcoin and gold.”