Gold prices have soared to an historical record above $4,000 (£2,985) per ounce. The increase constitutes the greatest advance in the noble metal since the 1970s. On Wednesday morning in Asia, the spot price for gold reached $4,016 an ounce. This is quite a leap—more than 25% in just the span of the month since April. This increase can be mostly explained by a softening US dollar and increasing concern over the effects of the still-ongoing US government shutdown.
With economic instability on the horizon, many investors are looking to gold as a safe haven asset. US government shutdowns aren’t good for much, but historical trends show they’re gold’s time to shine. For example, during Donald Trump’s first term gold rose almost 4% during that month-long shutdown. Landscape today is already pointing toward such a change, as there has been a marked increase in purchases from the retail investor.
Gregor Gregerson, founder of Singapore-based Silver Bullion, says new customer activity shot up 5 to 10 times normal levels. “Most of our clients are long-term holders,” he stated, adding that many individuals store their gold for over four years. He noted the headwinds that will cause gold’s direction to bob up and down, but was generally very optimistic about gold’s long-term course.
“Gold will fall at some point, but I believe given the economic environment, it’s on an upward trend for at least five years.” – Gregor Gregersen
Investments in gold exchange-traded funds (ETFs)—simple, convenient vehicles for buying and holding gold—have skyrocketed. Per the World Gold Council, a record $64 billion has rushed into these vehicles so far this year. This wave of funding highlights the burgeoning demand for gold from institutional and retail investors alike.
This new economic reality is daunting. The negative impact of critical economic data being released is already being delayed due to the government shutdown. This lack of clarity has led to investor concern and uncertainty. They fear the US central bank’s loss of its credibility as an inflation targeting institution. As OCBC analyst Christopher Wong told Bloomberg, the shutdown increases demand for gold. This move only fans the flashes of investor interest already spiking in the metal.
That makes the recent price increase all the more stunning. In 2022, gold’s price quickly dropped from $2,000 to $1,600 an ounce once the US central bank raised interest rates. That has changed dramatically this year as investors looking for shelter from volatility have gravitated toward the safety of blue chips.
That day on October 7, gold futures jumped to comparable heights. This increase is indicative of enthusiastic market sentiment and suggests a desire to continue engagement with the asset class. What happens next is yet to be determined. Some analysts caution that if the government shutdown wraps up faster than predicted, gold could tumble on the news.