Gold sky-rocketed past the US$3,900 per ounce level for the first time on Monday, propelled by safe-haven demand following a fall in the yen and a U.S. government shutdown while growing expectations of additional Federal Reserve rate cuts also provided support.
Goldman Sachs Research predicted in May that gold would reach $3,700 by year-end 2025 and the yellow metal has already exceeded that target - and then some.
Spot gold was up 0.9% at $3,922.28/oz by 0208 GMT, after hitting an all-time high of $3,924.39 earlier in the session, while futures for December delivery gained 1% to $3,947.30.
The precious metal has gained a stellar 49% so far this year after a 27% rise in 2024.
Yen weakness drives gold demand
The yen tumbled against the U.S. dollar by the most in five months after fiscal dove Sanae Takaichi was elected to lead the ruling party and become the next prime minister on 4 October.
"Yen weakness on the back of the Japanese LDP elections has left investors with one less safe-haven asset to go to, and gold was able to capitalise," KCM Trade Chief Market Analyst Tim Waterer said.
“The enduring U.S. government shutdown means that a cloud of uncertainty still hangs over the economy and the potential size of any GDP impact.”
The Trump administration will start mass layoffs of federal workers if U.S. President Donald Trump decides negotiations with congressional Democrats to end a partial government shutdown are “absolutely going nowhere”, a senior White House official said on Sunday.
“Gold is a go-to asset for investors under these circumstances, particularly with the Fed expected to cut rates further this month,” Waterer said.
Fed Governor Stephen Miran pressed for an aggressive rate cut trajectory again last Friday, citing the impact of Trump administration's economic policies.
Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.
ETF inflows accelerate
Gold has surged 49% so far this year after a 27% jump in 2024, helped by strong central bank buying, heavy flows into gold-backed exchange-traded funds (ETFs), a weaker dollar and growing interest from retail investors seeking a hedge amid rising trade and geopolitical tensions.
ANZ has tracked strong flows into these ETFs - the same that triggered this year's rally of 48% and the biggest annual rally since 1979.
“September alone saw inflows of 112 tonnes into gold-backed ETF holdings. Silver continued to rise in tandem with gold, with prices threatening to hit USD 50/oz,” ANZ Research said in a note.
“Spot market tightness is evident from another spike in lease rates to 8%. Strong flows into silver-backed ETFs have tightened the supply of free stocks.”
Meanwhile, silver prices tracked gold's trajectory, with the white metal approaching the $50/oz level, while lease rates spiked to 8%, indicating tightness in the spot market.