Gold Hits Record Highs as Central Banks and Geopolitical Uncertainty Drive Demand
Gold prices soared to a record high of $4,381.21 per ounce last Monday, more than 60% higher than at the start of the year before paring back slightly. This surge in gold prices sent shockwaves through the market, with gold funds receiving their largest weekly inflow on record in the week to Wednesday. According to the latest data from Bank of America Global Research, gold funds saw inflows of $8.7 billion in the week, bringing the total influx over the last four months to a staggering $50 billion.
Despite a short-term correction, analysts predict that gold will continue to benefit from structural demand from central banks, de-dollarisation, and ongoing geopolitical uncertainty. This trend is expected to push gold prices higher, making it an attractive investment option for investors looking to hedge against market volatility.
Gold's Rally Shows No Signs of Exhaustion
Russell Shor, senior market analyst at Tradu, emphasized that gold's rally is far from over, citing structural demand from central banks and ongoing geopolitical uncertainty as key drivers. Even with short-term corrections emerging, the broader trend remains firmly upward, underpinned by strong fundamentals.
"As de-dollarisation accelerates and global risks persist, investors are likely to continue viewing gold as both a hedge and a strategic asset," Shor said. "With official sector buying anchoring the market, any pullbacks may offer renewed opportunity. For now, the path of least resistance for gold still points higher."
Central Banks Continue to Support Gold Prices
The demand from central banks remains a significant driver behind gold's price surge. As countries diversify their foreign exchange reserves and seek safe-haven assets, gold has become an attractive choice. In addition to central bank buying, private investors are also increasing their holdings of physical gold, further driving up prices.
Geopolitical Uncertainty Continues to Impact Gold Prices
Geopolitical tensions between major economies, including the ongoing US-China trade war and escalating tensions in Eastern Europe, have contributed significantly to gold's price increase. As a safe-haven asset, gold is seen as a haven during times of uncertainty and instability, making it an attractive investment option for investors looking to reduce risk.
Oil Prices Jump Following New Sanctions on Russian Oil
Oil prices saw their largest two-day jump since 2022 following the announcement of new US sanctions on Russian oil. Brent crude traded near $65 a barrel last Friday, up just under 7% for the week, while West Texas Intermediate was below $62.
Concerns over supply disruptions and increased demand for alternative grades led to a sharp sell-off in government bonds, with yields rising in response. The sanctions have also had an impact on shipping activity, with major oil producers including China and India reducing their imports of Russian oil.
UK Retail Sales Rise for Fourth Consecutive Month
In other market news, UK retail sales volumes rose for the fourth consecutive month in September, according to new data from the Office for National Statistics (ONS). The 0.5% increase in sales volumes was higher than expected, with economists having forecast a 0.2% monthly drop.
The ONS reported that sales grew strongly at non-food stores, including computer and telecommunications retailers. However, overall retail sales remain 1.6% below their levels in February 2020 before the first COVID-19 lockdown.
Market Outlook
As gold prices continue to surge, investors are closely watching market trends for signs of a sudden halt or sharp slowdown in Russian exports. If such developments occur, they could pave the way for another leg higher in gold prices, according to Robert Rennie, head of commodity and carbon research at Westpac Banking Corp.
"In coming weeks, key will be what happens to shipping activity data," said Rennie. "If we do see signs of a sudden halt or sharp slowdown for Russian exports, we can certainly see another leg higher.