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Key Takeaways
- Gold traded above $4,000 an ounce for the first time on Tuesday, underscoring strong demand from investors hedging against risk and chasing the precious metal’s momentum.
- Some analysts have linked gold’s gains to a “debasement trade,” in which investors buy the traditional safe-haven asset as a hedge against waning faith in the integrity of the U.S. dollar and Treasurys, two pillars of the global financial system.
- Goldman Sachs on Monday raised its gold price forecast, and researchers at the World Gold Council expressed confidence that the dynamics driving gold prices higher will persist.
Gold hit $4,000 an ounce for the first time on Tuesday, extending its record run amid heightened economic uncertainty and surging interest from everyday investors.
Gold futures rose to an all-time high of $4,014 an ounce Tuesday morning. The precious metal, which investors typically favor as a hedge against inflation or stock market downturns, has gained about 50% this year, more than most stocks in the S&P 500.
“The latest leg higher has been underpinned by the growing uncertainty over the U.S. government shutdown and fear-of-missing-out flows into physical gold ETFs,” wrote Adam Turnquist, Chief Technical Strategist at LPL Financial, in a note Tuesday.
Why This Matters To Investors
Gold prices, like stocks, have surged to record highs this year. Investors worried about missing out on one of the year’s best-performing financial assets should first consider the fundamental supply and demand dynamics underpinning gold prices, including geopolitical risk, debt yields, and the value of the U.S. dollar.
Gold ETFs pulled in a record $17.3 billion last month, according to the World Gold Council, which attributed the buying to political tensions, options market activity, and a weaker U.S. dollar.
Blowout demand for the traditional safe haven has partially been driven by what some analysts have dubbed the “debasement trade,” referring to retail investors buying gold as a hedge against a ballooning federal debt, threats to the Federal Reserve’s independence, and a global rebuke of the U.S. dollar. The dollar’s decline has both given investors a reason to buy gold and made that gold less expensive for international buyers.
Gold has also been in high demand among global central banks seeking to diversify their reserves with an asset prized for its stability during geopolitical and economic crises.
Where Can Gold Prices Go From Here?
Goldman Sachs on Monday forecast gold will rise to $4,900 an ounce by the end of 2026, up from its prior estimate of $4,300.
“The inflows driving the 17% rally since August 26th–Western ETF inflows and likely central bank buying–are sticky in our pricing framework, effectively lifting the starting point of our price forecast,” wrote commodities strategists Lina Thomas and Daan Struyven. They expect central banks, especially in emerging markets, and Western ETF buyers to continue to be the main drivers of demand next year.
“We see the risks to our upgraded gold price forecast as still skewed to the upside on net,” because even a small rotation out of equities or Treasurys can have an outsized impact on the relatively small gold market, according to Thomas and Struyven.
Would a Stock Sell Off Boost Gold?
Researchers at the World Gold Council, a gold industry trade group, also see potential for turmoil in the stock market to support gold prices.
October, they note, is usually a jittery time for markets, and anxiety may be more acute this month “given lofty valuations, goldilocks earnings projections, high market concentration, extended positioning, and technical red flags.”
But there’s no guarantee gold appreciates when stocks sell off, so researchers evaluated gold’s performance during 17 stock corrections since 1973 to isolate the variables that influence the relationship between stocks and gold. They found that “the only factor that really seems to matter is where the US dollar goes.”
They warn that the dollar “looks almost as tactically oversold as gold is overbought,” which could set the stage for the greenback to rebound during a stock sell-off. But the good news for gold investors, they say, “is that during two-thirds of the equity sell offs the dollar has fallen” regardless of how overbought or oversold it was heading into the correction.
Their analysis suggests that, even with the dollar trading near its lowest level in years, gold should still benefit from a flight out of equities into safe havens.
If, however, gold fails to continue its ascent above $4,000, LPL’s Turnquist recommends investors keep an eye on support levels around the 20-day moving average of about $3,715. A drop below that level could precede a deeper pullback to the 50-day moving average around $3,515.
