The price of gold has hit a fresh record high, as investors seek out safe-haven assets to protect against inflationary and geopolitical risks.
Gold rose above $3,500 (£2,614) an ounce, surpassing its April peak. It has nearly doubled in value since early 2023. The rally comes as the US dollar has weakened and some central banks add to their gold holdings, ditching US government bonds, known as US treasuries.
At the same time, long-term borrowing costs rose to multi-year highs in the UK, France and Germany.
UK 30-year government bond yields hit a 27-year peak on Tuesday, intensifying pressure on Rachel Reeves, the chancellor, before her autumn budget. Yields measure the interest rate an investor receives for holding a bond, and rise when the price of a bond falls.
The pound fell by 1.2% against the dollar to $1.338, putting it on track for the biggest daily fall since 7 April, in the market mayhem after Donald Trump announced new tariffs against US trading partners.
The UK stock market declined along with indices across Europe, and Wall Street joined the sell-off when US markets reopened after Labor Day. The FTSE 100 index of blue-chip companies had fallen by 64 points – or 0.7% – to 9,131 points on Tuesday afternoon, receding from the record intraday high of 9,357 points set last month.
France’s 30-year government bond yields jumped to their highest levels in more than 16 years on Tuesday, as investors rushed to sell French debt. Germany’s 30-year government bond yield has risen to a 14-year peak, in line with higher US treasury yields, while Italy’s 30-year yield reached its highest level since April.
Mark Haefele, the chief investment officer at UBS Global Wealth Management, said heightened political and geopolitical risks underline the appeal of gold, which tends to benefit from uncertainty. He predicted gold could reach $3,700 an ounce by next June, but did not rule out a rise to $4,000 an ounce if geopolitical or economic conditions deteriorate.
The dollar clawed back some ground, rising by 0.5% against a basket of leading currencies, after hitting a five-week low on Monday, before US traders return from the Labor Day holiday.
The US currency has been under selling pressure as expectations of an interest rate cut at the Federal Reserve’s September meeting have increased, with markets seeing a 90% probability of a quarter-point reduction. There is also growing alarm over the US central bank’s independence, with Donald Trump’s repeated criticism of Fed chair Jerome Powell and his moves to sack Fed governor Lisa Cook.
“September has always been a cruel month for markets, but this one carries more than seasonality,” said Stephen Innes, a managing partner at SPI Asset Management. “It carries the question of whether the Fed bends or breaks.”
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Some central banks, including those of India, China, Turkey and Poland, have been adding gold to their reserves. The precious metal overtook the euro last year to become the world’s second largest reserve asset, behind the dollar, according to a European Central Bank report published in June.
Ipek Ozkardeskaya, a senior analyst at Swissquote Bank, said: “The share of US treasuries held by foreign central banks has been declining for more than a decade, but that shift into gold accelerated this year amid US debt concerns, ratings downgrades, trade tensions and geopolitical risks. Central banks’ gold allocations even surpassed their US treasury holdings this year.”
Indian pension funds are seeking approval to invest in gold exchange-traded funds (ETFs), hinting at strong demand despite the record price, she said.
Silver has also risen, hitting its highest level since 2011. “Both metals have further room to run,” Ozkardeskaya said. “Yet, with the gold-silver ratio still above its long-term range of 60-80, silver may have greater upside potential.”
