Gold Heads for Biggest Annual Gain Since 1979

• Gold prices hit a record of more than $3,895 per ounce amid a U.S. government shutdown – the first since 2018 – driving a 48% year-to-date surge, the strongest since 1979, fueled by central bank purchases and record ETF inflows in September.
• Federal Reserve divisions on rate cuts, alongside concerns over the central bank’s independence amid legal challenges to a governor’s tenure, have amplified haven demand for bullion, with the dollar index declining 0.2%.
• Silver advanced over 60% this year to $47.56 per ounce, nearing its all-time high due to supply deficits and shared macroeconomic factors with gold, while platinum rose and palladium remained unchanged.

Gold prices have surged to unprecedented levels amid escalating political uncertainty in the United States, underscoring the metal’s enduring role as a store of value during periods of fiscal and institutional strain. Bullion touched an all-time high of $3,895.38 an ounce, marking a fifth consecutive day of gains and reflecting a year-to-date increase exceeding 48 percent – the strongest annual performance since 1979. This momentum persisted into the latest session, with spot gold advancing 0.8 percent to $3,888 an ounce at 9:30 a.m. in London, following a 0.7 percent close higher on Tuesday.

Central banks’ sustained accumulation has been a cornerstone of this rally, with institutions diversifying reserves away from traditional currencies amid geopolitical tensions and de-dollarization efforts. Complementing this, investor appetite for gold-backed exchange-traded funds has intensified as the Federal Reserve initiates monetary easing, evidenced by September’s inflows representing the largest monthly figure in three years, per data compiled by Bloomberg. These developments align with broader trends where gold serves as an inflation hedge and liquidity buffer, particularly as real yields decline following rate reductions.

The current environment is amplified by a U.S. government shutdown, the first since 2018, triggered by the failure of a stop-gap funding package. This disruption not only imperils the timely release of pivotal economic indicators – such as Friday’s non-farm payrolls – but also exerts downward pressure on the dollar, with the Bloomberg Dollar Spot Index slipping 0.2 percent. Such delays could obscure assessments of labor market resilience and inflationary pressures, further bolstering gold’s appeal in an opaque data landscape.

Compounding these fiscal risks are internal divisions within the Federal Reserve on the pace of policy normalization. Boston Fed President Susan Collins indicated that additional rate cuts could be warranted this year in light of softening labor conditions, though she emphasized vigilance against entrenched inflation. In contrast, Dallas Fed President Lorie Logan advocated restraint, citing inflation’s position above the target and a labor market that remains relatively equilibrated. These divergent perspectives highlight the challenges in balancing growth support with price stability, a dynamic that historically amplifies haven flows into precious metals.

Heightened scrutiny over the Federal Reserve’s autonomy adds another layer of volatility. Recent legal maneuvers by Fed Governor Lisa Cook’s representatives, petitioning the U.S. Supreme Court to preserve her tenure amid President Donald Trump’s dismissal efforts, have reignited debates on central bank insulation from executive influence. Such episodes echo past instances where perceived threats to independence spurred safe-haven buying, reinforcing gold’s position as a bulwark against policy unpredictability.

Silver has mirrored this upward trajectory, climbing as much as 2 percent to $47.56 an ounce – now within 5 percent of its record peak – and posting a year-to-date gain surpassing 60 percent. While sharing gold’s macroeconomic tailwinds, silver’s advance is distinctly shaped by structural supply constraints, as multi-year deficits in mine output converge with robust industrial demand in sectors like solar energy and electronics. In the most recent trading, silver rose 1.4 percent, rebounding from a 0.6 percent decline the prior day. Among other platinum-group metals, platinum registered gains, while palladium held steady, illustrating varied sensitivities within the complex to the prevailing risk-off sentiment.

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