Gold on a pedestal: investors abandon US and EU government debt for metal
Gold on world stock exchanges last week broke through another psychologically important mark — $ 3,500 per troy ounce. The precious metal knows no ceiling, and the largest banks admit that the price may exceed $ 5,000. At the same time, silver prices accelerated, reaching $40 per ounce for the first time in 14 years. Why metals are getting more expensive, whether they will continue to break records, and what does the collapse of U.S. and European government debt quotes have to do with it? See the Izvestia article.
Twice in three years
The price of gold on world markets reached $3,576 per ounce, setting a new record. Thus, the mark of $ 3,500, which until recently seemed to many analysts to be a likely maximum, has remained far behind. The main reason for the next surge was speculation about a rate cut by the US Federal Reserve at the next meeting. The key report on the US labor market, which was released last Friday, showed signs of a slowdown, which spurs the Fed to act.
In general, gold is one of the most profitable commodities in 2025. Since the beginning of the year, the precious metal has risen in price by more than 35%. At the same time, its cost was already a record by historical standards. Almost any other raw material this year either showed stagnation (like oil) or showed moderate growth, like copper.
Gold stands out sharply from the general background, largely because it is not a typical commodity. At the same time, in the long term, gold has been experiencing a bull market for a couple of decades: 20 years ago, its quotes were about $ 500 per ounce. Over the past three years, the value of precious metals has doubled. The best results in the relevant segments were demonstrated only by the securities of technology companies.
And it's not over yet. According to Goldman Sachs analysts, gold could rise to almost $5,000 per ounce if the independence of the US Federal Reserve is undermined and investors transfer at least a small part of their assets from US treasury bonds to precious metals. Analysts believe that this scenario will lead to higher inflation, lower prices for stocks and long-term bonds, as well as undermine the dollar's status as a reserve currency. Gold, according to the bank, is a store of value that does not depend on institutional trust.
The bank outlined a number of possible scenarios for the metal: a baseline forecast of growth to $4,000 per ounce by mid-2026; a so-called "tail risk" scenario (unlikely but with major consequences) of $4,500; and an estimate of almost $5,000 if only 1% of the privately held U.S. Treasury bond market it will turn into gold.
The forecast is radical, but recent developments leave no doubt about its legitimacy. Five years ago, few people could have bet that gold would triple in price. Today, this is no longer surprising: geopolitical risks are growing rapidly, which forces central banks to invest more aggressively in a neutral asset. For many years, central banks have been net buyers of the metal, although in the past the situation was more often the opposite. In addition, investors are very concerned about inflation, and gold is a universal asset that protects against this phenomenon.
It is highly likely that gold will either grow or hold high positions in the near future. Even if the Fed does not lower the rate, it can happen for only one reason: inflation in America will increase again (a very likely scenario). But the acceleration of inflation again leads to an increase in gold prices.
The unloved younger brother
The already impressive performance of gold in 2025 was surpassed by another metal, silver. It increased by about 43%, and on September 1, its price exceeded $40 per ounce for the first time since 2011. Silver, in addition to its savings advantages, is valued for industrial applications, including in technologies, including solar panels.
Against this background, the market is moving towards the fifth year in a row with a deficit. Investors actively invested in exchange-traded funds (ETFs) backed by silver, with the volume of assets growing for the seventh month in a row in August. In total, over the past six months, the funds have bought about 100 million ounces of silver. This depleted the available metal reserves in London, leading to continued market tensions.
Silver has long been considered the "younger" and "unloved" brother of gold, if we take an interest in it as a financial asset. In the 20th century, the price ratio of 40-50:1 in favor of gold was considered normal; in the 21st century, the situation for silver deteriorated sharply, and now the proportion ranges from 80-100:1. While gold has risen in price several times compared to the level of the beginning of the last decade, silver is still at the same levels. And taking into account inflation, this metal has become much cheaper.
The main problem with silver is that, unlike gold, it is unpopular with central banks. This is understandable: it is not very convenient to store so much in physical volumes, gold is more compact and easier to handle. However, silver is more valuable in terms of industrial demand. And although gold has advantages in addition to storage and jewelry, the use of silver is still much wider.
Recently, silver has been gaining momentum even relative to the very expensive gold, and in many ways because of it. Investors believe that gold has become too expensive, they are looking for alternatives and choose silver. If today's negative trends in the markets intensify, the popularity of this metal will also steadily increase.
Gold instead of debt
There is another, even more interesting interdependence. The growth of gold and silver coincides with an unprecedented drop in quotations and rising yields on long-term bonds of the United States, the EU and several other countries. Normally, in the past, when the economic situation worsened, the opposite happened: the most reliable government debt (American and, say, French or German belonged to this category) decreased in profitability. This was because the Central Bank lowered interest rates in such circumstances, which meant that bonds became more profitable than bank deposits.
But now the situation is different. The largest economies have experienced several shocks. First, the financial crisis of 2008. Secondly, the coronavirus pandemic. In both cases, States had to borrow huge amounts of money, increasing public debt. And then there was a surge in inflation, which forced the Central Bank to limit its government bond purchase programs and, conversely, sell them. Supply (both the sale of the Central Bank and the need for states to borrow more and more in order to repay the already accumulated interest) very soon exceeded demand, as a result of which yields crept up — so far on "long", riskier bonds. At the same time, there is no doubt that this snowball will only grow in the future.
In this situation, investors are starting to think about the prospect of their investments in bonds. Will there be a default? Even if this is unlikely to be realistic in the case of the United States, the option of debt monetization through inflation is quite likely. That is, the bonds of even the most reliable countries do not look reliable enough. Investors have no choice but to look for alternatives. And the most obvious are precious metals, especially gold, which remains a currency to some extent. The more turmoil in the debt market increases, the more gold and silver will "shine".
And if the exit of 1% of investors from US bonds is able, according to economists, to raise the gold exchange rate to $ 5,000 per ounce, its price in the event that government obligations are disposed of more massively is difficult to imagine.
Переведено сервисом «Яндекс Переводчик»
