Precious metals reached new heights this week as investors sought safe-haven assets amid escalating tensions in the Middle East, looming U.S. elections, and global economic uncertainty.
Gold prices surged to a historic record, fueled by discussions among BRICS Nations about launching a gold-backed currency.
This may signal a potential shift from the U.S. dollar as the dominant reserve currency.
Gold surged to a historic record high on Wednesday, reaching $2,750.15 an ounce amid Middle East uncertainty, expectations of further monetary policy easing, and potential risks surrounding the upcoming U.S. presidential elections. Spot gold rose from $2,738.48 on Tuesday, while silver increased to $34.57 an ounce from $34.49.
The rally, driven by geopolitical instability and expectations of more accommodative monetary policies, saw gold briefly hit $2,758 in intraday trading, marking a 40% increase over the past year.
Trading Economics analysts said , “Markets continued to monitor diplomatic efforts in the Middle East, with investors still fearing a broader conflict in the region as Israel continues its attacks on Gaza and Lebanon. The approaching U.S. election further boosted demand for safe-haven assets, as both presidential candidates remain in a tight race.”
“Additionally, the bolstering demand was amplified by monetary easing from major central banks. This follows the recent reductions in key lending rates by the central banks in China and the Eurozone. Meanwhile, expectations for aggressive rate hikes from the Federal Reserve have diminished following a series of positive economic data.”
However, analysts said the main catalyst for the price of yellow metal is the ongoing talks in Kazan among BRICS members about launching a gold-backed currency.
“It is now necessary to create an alternative monetary relationship between our countries. We are not talking about replacing our domestic currency. But when we talk about a multipolar world, we must create a financial system; we must seriously discuss this topic,” President of Brazil Lula said .
The current BRICS summit has also sparked significant discussions about global economic shifts, particularly regarding alternatives to the U.S. dollar as the reserve currency. While past attempts to reduce dollar reliance faced skepticism, the ongoing dialogue among BRICS nations may indicate a growing emphasis on gold as a key asset.
Gold has traditionally served as a hedge against currency fluctuations and inflation. As BRICS countries aim to enhance their economic independence from the dollar, gold could play a vital role in this transition.
Collectively, BRICS nations hold over 20% of the world’s gold reserves, with Russia controlling 8.1% and China closely following.
Stephen Innes of SPI Asset Management told CCN, “Gold continued its upward march as investor demand showed no signs of cooling off, fueled by escalating geopolitical tensions. With the Middle East on a knife’s edge, traders seek refuge in the precious metal. But there’s more to this gold rush than regional conflict. Investors are increasingly jittery over the possibility of a Republican victory in the upcoming U.S. presidential election. They fear that it could not only send U.S. debt spiraling. But it may also plunge the global economy into chaos, courtesy of a potentially devastating trade war. The safe-haven appeal of gold is shining brighter as uncertainty takes center stage.”
While many have wondered about gold’s rich valuation relative to real yields, finding another lens to assess its price is difficult. After all, gold is an inert metal. And its value is often compared to the opportunity cost of not earning the inflation-adjusted risk-free rate.
“Some of this rally is a classic flight to safety amid escalating tensions in the Middle East. But it’s not just the threat of regional conflict driving demand. There’s that omnipresent narrative around central bank buying, especially among BRICS Nations, as they look to diversify away from the U.S. dollar in the face of potential sanctions. This story fuels the bullish fire, but it’s not the whole picture.”
“Behind the scenes, there’s a quieter but growing concern about America’s fiscal health. With the election looming, whispers of a U.S. debt crisis are gaining volume. Even if deficit fears are often more bark than bite. Still, for many gold investors, perception is reality, and the current rally could reflect deeper worries about dollar debasement and a fiscal path that seems increasingly unsustainable.”