The price of gold has surged to an unprecedented level, breaking through the $5,000 per ounce barrier for the first time in history. This remarkable milestone was reached on Monday, with the precious metal jumping 1.8% to settle at $5,078 an ounce, according to data from Bloomberg. The surge represents a dramatic and historic run for gold, which has seen its value increase by nearly 90% since Donald Trump's inauguration just over a year ago.
Investors Seek Safe Haven Amid Political Chaos
This record-breaking rise is largely attributed to investors flocking to gold as a safe haven asset in response to the ongoing turmoil and unpredictable policies emanating from the Trump administration. With global financial markets already on edge, recent events have further fueled anxiety among investors.
Key factors driving this flight to safety include Trump's threats to impose 100% tariffs on Canada if it strikes a deal with China, as well as his dramatic confrontations with Europe over issues like Greenland. Additionally, rising fears of another potential US government shutdown have added to the climate of uncertainty, after Democrats threatened funding for the Department of Homeland Security following a weekend shooting incident in Minneapolis.
Concerns Over US Dollar Weakening
Steve Miller, an investment strategy adviser at Australia-based asset manager GSFM, highlighted that the latest lift in gold prices stems from growing concerns that the Trump administration may take steps to deliberately weaken the US dollar. Miller, who has four decades of experience in financial markets, noted that he hasn't witnessed such a dramatic gold rally since the inflation scares of the late 1970s and early 1980s.
"The second oil shock and the inflation scare in the late '70s, early '80s would be the last time I remember when gold did this – and that was before my time in markets," Miller remarked.
The catalyst for Monday's specific price increase was news that the US Federal Reserve was contacting banks to check exchange rates between the US dollar and the depreciating Japanese yen. Miller interpreted this move as a signal that authorities believe the dollar is overvalued.
The Debasement Trade and Gold's Allure
There has been long-standing speculation within financial circles that key voices in the US administration would prefer a weaker dollar to help revitalise America's domestic manufacturing base. However, a depreciating dollar would undermine the value of traditional American assets like treasury bonds, thereby enhancing gold's appeal as the ultimate store of value.
This phenomenon, often referred to as the "debasement trade," carries more dramatic implications as well. Some analysts point to America's escalating debt and deficits, warning that a sudden loss of faith in the world's reserve currency could deliver a severe blow to global financial markets.
While Miller remains unconvinced that such a catastrophic scenario will materialise, he acknowledges that gold will continue to be in high demand as long as uncertainty prevails in global markets.
"I think it could well have some further upside," Miller said. "But just as good is it might insulate you from turmoil in other asset classes."
The precious metal's remarkable performance underscores its enduring role as a diversification tool and safety net during periods of political and economic instability, with current conditions creating what many see as a perfect storm for gold's continued ascent.
