Gold surges past record of $3,500 on Fed rate cut forecast and safe haven demand

Silver exceeded $40 an ounce for the first time since 2011 this week

Gold prices surged to an all-time high on Tuesday, exceeding a record set in April, amid expectations of a US interest rate cut this month and safe haven demand.

Spot gold was up 0.42 per cent at $3,492.36 an ounce at 10.04am UAE time, after hitting a record high of $3,508.50 earlier in the session. Bullion is up 33 per cent in the year to date.

Silver passed $40 an ounce for the first time since 2011 on Tuesday, taking its gains this year to nearly 40 per cent.

The value of both precious metals has more than doubled over the past three years.

Demand for bullion has risen as investors view it as a hedge against inflation and macroeconomic uncertainty, say analysts.

Rising concerns about the US Federal Reserve’s independence after US President Donald Trump put pressure on chair Jerome Powell and moved to sack governor Lisa Cook, as well as expectations of a rate cut this month, have driven the most recent gold rally.

“The immediate catalyst lies in growing conviction that the Federal Reserve will move towards a September rate cut, amid rising pressure from Donald Trump, while broader equity markets lose momentum as enthusiasm for artificial intelligence begins to be alarming,” said Samer Hasn, senior market analyst at XS.com.

“Together, these dynamics have strengthened gold’s appeal as investors hedge against both monetary and equity-market uncertainties.”

When interest rates are cut, the allure of precious metals such as gold – that do not offer interest or dividends like stocks and bonds – goes up.

Inflows into gold exchange-traded funds (ETFs) are also an important source of demand, Goldman Sachs wrote in a recent note. Analysts from the bank forecast spot prices to hit $4,000 an ounce by the middle of next year.

Central banks have also increased their gold holdings. Large buyers last year included India, China, Turkey and Poland, according to the World Gold Council.

Meanwhile, political pressure on the Fed is rising and may over time introduce an “independence premium” into US assets, said Saxo Bank's head of commodity strategy, Ole Hansen. This, in turn, is supportive for gold in particular, because investors hedge governance risk with real assets.

Labour market data will dominate this week's agenda. A weaker jobs report could harden expectations of a rate cut, pressuring the US dollar, which is already trading at a five-week low, while a stronger print could temper market conviction and weigh on bullion, Mr Hasn said.

US equities are already “priced at extreme levels”, with concentration in few mega-cap technology stocks pushing the S&P 500 to new highs.

“But it has also made the index more vulnerable to abrupt sentiment shifts,” Mr Hasn said. “If enthusiasm cools further, the combination of stretched valuations and overbuilt expectations could spark a broader market pullback, reinforcing the case for gold as both a hedge against financial instability and an anchor amid policy uncertainty.”

Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said the gold rally reflects a softer dollar but also strong central bank and institutional demand as investors rotate out of US Treasuries.

The share of US Treasuries held by foreign central banks has been declining for over 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, she said.

“Meanwhile, Indian pension funds are seeking approval to invest in gold ETFs, hinting at strong demand despite record price,” Ms Ozkardeskaya added.

Silver shining

Silver’s outperformance reflects its dual role as an investment and industrial metal, according to Mr Hansen.

Growth in solar, electric vehicles and electronics continues to push industrial consumption higher, with photovoltaics alone now accounting for nearly one-fifth of silver demand.

While electronics are far less sensitive to rising silver costs given the small share of the precious metal in overall production, jewellery demand could soften if prices stay elevated, Saxo Bank said.

Watch: Dubai's gold traders say demand for raw product up amid broader sales slump

Dubai's gold traders say demand for raw product up amid broader sales slump

01:27

Investment demand for silver through exchange-traded funds also remains strong, with the latest data showing total holdings rising to a three-year high, Mr Hansen said.

The supply side, however, remains constrained. Silver is produced largely as a by-product of mining other metals, meaning higher prices do not automatically translate into higher output.

Mine supply has been slow to respond even after several years of deficits, with surveys indicating a seventh year in a row in which mined production has failed to meet growing demand, Mr Hansen added.

“Silver’s relative cheapness to gold has added momentum, with the gold-silver ratio near 85, above its five-year average around 82,” he said. “While gold must push through record highs to extend its rally, silver still trades well below the 2011 peak of $50, leaving room for further investment demand.

“While volatility will remain higher than in gold – silver often behaves like gold on steroids – the structural outlook remains supportive. For investors, the latest move is not a stand-alone spike but part of a broader rally, potentially with more room to run.”