Gold price breaks through the top, approaching $4380! Gold becomes the ultimate safe haven, "crazy bull" market continues.

On Friday, the spot gold rose, hitting a historical high and approaching $4380 at one point. As of the time of writing, the increase was 1.18%, at $4377. The gold rush has led to precious metals continuously hitting price records in 2025, continuing the strong uptrend from last year and surpassing stock market returns. In mid-October, with the U.S. government shutdown continuing, escalating tensions between China and the U.S., and investors betting that the Fed will further cut interest rates, the price of gold broke through $4300 per troy ounce. Gold has been a safe haven asset during periods of political and economic turmoil for centuries. As a reliable commodity of high value that is easy to transport and sell anywhere, gold is the preferred safe haven for investors in times of global instability. Major central banks are still increasing their gold reserves, and investors are increasingly seeking gold as a safe haven this year. Concerns about the escalating trade war initiated by U.S. President Trump, record levels of U.S. debt, worries about the health of the U.S. economy, and the erosion of the Fed's independence have all contributed to this trend. Data shows that as investors flock to gold-backed exchange-traded funds (ETFs), the total holdings have reached the highest level in over three years. On Friday, concerns about the overall economic credit quality arose as regional banks Zions and Western Alliance in the U.S. faced non-performing loan issues. Funds quickly flowed into safe haven assets, further boosting the surge in gold prices. What makes gold so attractive? For Xiandai Investment, this is mainly due to the stability and liquidity of gold, rather than any inherent utility. Gold has a record of rising during market pressures. After the global financial crisis, gold broke through $1000 per ounce; during the COVID-19 pandemic, gold broke through $2000; and after Trump's tariff plan swept global markets in March, gold broke through $3000. Most recently, the U.S. government shutdown pushed gold prices above $4000. When the purchasing power of currencies is declining, gold is seen as a tool to hedge against inflation. Concerns about inflation are currently top of mind for many as Trump's tariffs on imported goods could lead to global price increases. With Trump's continuous pressure on the Fed to cut rates, U.S. inflation is particularly worrisome. Gold does not pay interest and is usually more attractive in a low-interest rate environment, as the opportunity cost of holding gold relative to other interest-bearing assets decreases. As Trump's trade agenda and runaway budget deficits erode trust in other traditional safe-haven assets (sovereign debt and currencies, especially the U.S. dollar), the safe haven status of gold has also been elevated. Investors are not only rushing to buy gold but also flocking to silver, other precious metals, and even bitcoin to participate in so-called "currency devaluation trades." Historically, gold has a negative correlation with the U.S. dollar. Since gold is priced in dollars, when the dollar weakens, gold becomes cheaper for those holding other currencies, stimulating demand and driving prices higher. In mid-September, the dollar fell against other major currencies to a level not seen in over three years. Aside from market volatility, the tradition of holding gold is deeply ingrained in the cultures of India and China two of the world's largest gold markets. Jewelry, gold bars, and other forms of gold have been passed down through generations in these countries, symbolizing prosperity and security. Indian households hold about 25,000 tons of gold, more than five times the gold reserves held at the U.S. Fort Knox gold depository. Physical gold buyers are highly sensitive to prices. When the appeal of gold to financial market investors begins to wane, buyers of jewelry and gold bars often seize the opportunity to buy on dips, providing support for prices. Why are major central banks buying more gold? Since early 2024, the strong rise in gold prices has been partly due to the large-scale purchases by major central banks, especially in emerging markets, as they try to reduce their reliance on the U.S. dollar (the world's main reserve currency). Gold helps to diversify a country's foreign exchange reserves and prevent currency depreciation. Over the past 15 years, major central banks have been net buyers of gold, but after the Russia-Ukraine conflict, their buying pace doubled. With the U.S. and its allies freezing funds held by the Russian central bank, the risk of foreign asset sanctions has been highlighted. According to data from the World Gold Council, in 2024, major central banks bought over 1000 tons of gold for the third consecutive year, with their gold holdings accounting for about one-fifth of the world's total gold production. Among the most active countries in terms of reserves are those that did not join the Bretton Woods system after World War II, which was essentially a gold-based monetary order. The People's Bank of China has been consistently increasing its gold holdings, with purchases for the 11th consecutive month in September. Reports suggest that the Chinese central bank also plans to become a custodian for foreign sovereign gold reserves, consolidating its position in the global gold market. Most countries that hold gold overseas store it in the gold vaults of the Bank of England, which holds over 5000 tons of global reserves. What factors may hinder the rise of gold? The gold bull market this year has entered uncharted territory. In September, gold prices surpassed their peak in 1980 adjusted for inflation. Relative to most commonly used valuation metrics, precious metals appear to be overpriced. For example, the gold-to-copper ratio is usually seen as a key barometer of the global economy, with higher levels indicating increasing concerns about economic prospects. Based on data dating back to the formal end of the gold standard in the 1970s, in early October, the ratio hovered around 99.7%. One area where gold prices do not seem overvalued is relative to the U.S. stock market, which has also risen due to optimism about the Fed cutting rates and enthusiasm for artificial intelligence. In early October, the ratio of gold to the S&P 500 index was about 0.6, slightly below the 20-year average. A rising dollar, a significant reduction in tariffs by Trump, or a peace agreement between Russia and Ukraine could all drag down gold prices. As investors take profits, the market may ultimately enter a period of consolidation. However, the total holdings of gold ETFs remain far below their peak in 2020. Furthermore, major central banks have been a key pillar supporting the bullish trend in gold prices, which means that if they reduce their reserves, they have the ability to cause a significant drop. However, there is currently no sign that any large holders are considering doing so. Since the 1990s, central banks in developed economies have had very small amounts of gold sales compared to previous decades, when continued sales led to a drop in gold prices by over a quarter over ten years. Concerned that these uncoordinated sales actions would disrupt market stability, the first Central Bank Gold Agreement was signed in 1999, with signatory countries agreeing to limit the amount of gold bars collectively sold. Risks of investing in physical gold Owning gold typically comes with costs. Since gold is a physical asset, holders must pay storage, security, and insurance fees. Investors buying gold bars and coins usually pay a premium above the spot price. Price differentials may also exist due to geographical variations, and traders will take advantage of these arbitrage opportunities. Earlier this year, concerns in the market that Trump might impose tariffs on gold imports led to significantly higher prices for gold futures on the New York Mercantile Exchange (Comex) compared to spot prices in London. Globally, investors holding gold rushed to transfer their gold to the U.S. to take advantage of the huge premium and potential profits in the hundreds of millions of dollars. In April of this year, the Trump administration announced that it would exempt gold imports from tariffs, halting arbitrage trading. Prior to this, in August, the U.S. Customs and Border Protection indicated that some gold bars would be affected by Trump's "reciprocal tariffs," causing market concerns. However, Trump himself later stated that gold would not be subject to import taxes. Gold is relatively easy to transfer, usually by air transportation. But there is a difference in the global gold market: size requirements vary, and transferring is not as simple as from Heathrow Airport to Kennedy Airport. In London, the standard weight for gold bars is 400 ounces, whereas for contracts on the New York Mercantile Exchange (Comex), traders must deliver gold bars of 100 ounces or 1 kilogram. This means that gold bars being sent to the Comex warehouse in New York must first be melted and recast into the correct size at a refinery in Switzerland before being shipped to the U.S. This can cause bottlenecks when there is an urgent need to reposition gold bar inventories.