Analysts note confidence in the precious metal is ultimately linked to sentiment towards the greenback
[SINGAPORE] Gold is blazing a trail towards US$4,000 an ounce, driven by a potent mix of softening US economic indicators, questions over the Federal Reserve’s autonomy, and the absence of viable rivals to the greenback in global currency markets.
Spot gold topped US$3,650 an ounce on Tuesday (Sep 9), extending an almost 40 per cent year-to-date rally to notch another price record.
The surge underscores a historic run for the yellow metal, which is increasingly seen as a safe haven asset in a world of mounting monetary, fiscal and geopolitical stress.
How far away is US$4,000 an ounce?
Sim Moh Siong, currency strategist at Bank of Singapore, told The Business Times that gold’s upward momentum is underpinned by firm expectations for Fed rate cuts, as well as the scarcity of fiat currency alternatives to the US dollar as a store of value.
Concerns over Fed independence, while driving up gold prices, have not been fully reflected in the financial markets amid ongoing legal battles between Fed Governor Lisa Cook and US President Donald Trump, who intends to remove her from the central bank’s board.
“The legal hurdle to political interference in the Fed is still quite high, because right now we have an ongoing legal battle… But if the concerns (over Fed independence) escalate, we are likely to see that impact showing up in gold prices in a very big way,” said Sim.
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He flagged compromised central bank autonomy as a “tail-risk event” – low probability but high impact.
Confidence in gold, he added, is ultimately tied to confidence in the greenback. “Central banks which are independent have a better track record of keeping inflation low, and that’s important to anchor trust in currencies,” he said.
“If markets perceive Fed independence being compromised, gold prices could break beyond US$4,000 an ounce.” He forecasts the commodity to reach US$3,900 an ounce over the next 12 months.
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“As long as fiat risks persist, investors will keep increasing their allocation to bullion.”
– Sim Moh Siong, currency strategist at Bank of Singapore
Similarly, gold strategists at State Street Investment Management expect the precious metal to trade between US$3,500 and US$3,900 an ounce over the next six to 12 months, at a 30 per cent bull case chance.
They said in a Sep 5 report: “We are likely to raise our longstanding bull case gold price range (US$3,500 to US$3,900 an ounce) from 30 per cent to 40 per cent in October, should the recent move higher (be sustained) after the September Fed meeting.”
The rally reflects entrenched expectations for rate cuts after disappointing US non-farm payrolls data.
“The labour market is cooling, the US consumer is on defence, and the broader disinflation trend is being challenged, with tariff impacts now more prevalent in the data… We would argue that the risks of stagflation or an equity market volatility shock are higher – not lower,” the strategists warned, noting resilient demand for gold across both strategic and tactical investor segments.
Lack of fiat alternatives
Sim stressed that gold’s rise is also a reflection of waning confidence in other major currencies. “It’s not just about the US or the Fed, but also the safety of fiat currencies.”
French political instability, UK fiscal strains and Japanese policy uncertainty have weighed on the euro, sterling and yen.
“The political and fiscal uncertainty drags down the greenback’s alternatives – and that benefits gold,” said Sim, adding that as long as fiat risks persist, investors will keep increasing their allocation to bullion.
