Decoding the "crazy" world gold price

(Dan Tri) - Gold prices have surpassed $3,500/ounce, setting an unprecedented record. But behind that shocking figure, what is really fueling this spectacular breakthrough?

Last June, a report from the European Central Bank (ECB) revealed a surprising truth: gold officially surpassed the euro to become the second largest reserve asset in the world , behind only the US dollar.

The above information, although not "stormy" in the newspapers, is one of the most important pieces to explain the gold rush that is shaking the global market, with the price of this precious metal just setting a new record at 3,532 USD/ounce on September 2.

It was not just a number but the culmination of a “perfect storm” where economic, geopolitical and profound confidence factors converged, propelling the precious metal into a meteoric bull run.

The biggest question now is no longer “why is gold rising?” but “what does this craze say about the world we live in?”.

Surface dynamics: The interest rate game and the element of surprise

On the surface, the immediate boost for gold comes from a familiar scenario: expectations that the US Federal Reserve will soon cut interest rates.

The market is betting on a 92% chance that the Fed will cut rates by 25 basis points at its meeting on September 17. The logic is simple: low interest rates reduce the opportunity cost of holding non-yielding gold, making it more attractive.

All eyes are now on the US non -farm payrolls report due later in the week, a weak reading that could spark speculation of a more aggressive cut of up to 50 basis points, further fueling gold's rally.

In addition, the impact of US government policies cannot be ignored. President Donald Trump’s second term is creating a lot of uncertainty in the market, with unpredictable security policies, increasing trade tensions, and public statements related to the Fed. Efforts to pressure Chairman Jerome Powell and proposed changes to Governor Lisa Cook have raised concerns about the independence of the central bank.

“These developments are a warning to FOMC members about the pressure from the government. This makes gold a more attractive investment channel,” said an expert from Commerzbank. “The market is watching to see whether the Fed will adjust to the pressure or maintain its stance.”

In such uncertain times, gold continues to be seen as a safe haven.

Gold prices have just set a record of 3,532 USD/ounce, up more than 90% since the end of 2022 and are expected to maintain their appeal thanks to many supporting factors (Photo: IG).

The Deep Motive: The Undercurrent Called "Dedollarization"

If the interest rate game and US politics are the surface waves, the real force pushing gold to new heights is a much stronger undercurrent: the great exodus from the US dollar by central banks.

Since 2022, global central banks have been net buyers of more than 1,000 tonnes of gold each year. This year’s figure, though down slightly, is still expected to be 900 tonnes – double the 2016-2021 average. The leaders of this trend are China, India, Türkiye and Poland, whose share of total annual gold demand has doubled over the past decade to 23%.

The reason is nothing less than a costly lesson from the Ukraine conflict. When the West freezes half of Russia’s foreign exchange reserves in 2022, it sends a chilling message to developing countries: reliance on the dollar means putting your financial destiny in Washington’s hands.

Gold, as a neutral asset, not subject to the control of any country, has become the obvious choice for diversification and protection of economic sovereignty.

Alarming truth: The "vote of no confidence" on government bonds

However, the most unique and worrying point of this price increase lies in a paradox in the bond market. Normally, when the world is unstable, investors will seek two main safe havens: gold and government bonds of developed countries such as the US, Germany, and the UK.

But a strange scenario is unfolding. Gold prices are hitting new highs, while yields on US, UK, French and German government bonds are also climbing to multi-year, even multi-decade highs. This shows an alarming fact: investors, and especially central banks, are not only running to gold, but also fleeing from what was once considered an absolute safe haven - Western sovereign debt.

Ipek Ozkardeskaya, an analyst at Swissquote Bank, made a shocking observation: "Foreign central banks' holdings of US government bonds have been falling for more than a decade, but the shift to gold has accelerated sharply this year. By 2025, the share of gold in central banks' reserves will even surpass their holdings of US government bonds."

No longer a simple diversification move, this is a vote of no confidence in the sustainability of US public debt, amid concerns about credit downgrades and persistent trade tensions. Gold is gradually replacing US government bonds as the "safe haven of last resort".

The Big Picture: Individual Investors Enter, Jewelry Industry Stays Out

The gold rush is not limited to central bank vaults. Individual and institutional investors are also jumping in. Gold exchange-traded funds (ETFs) saw net inflows of 397 tonnes in the first half of the year alone, the highest since the pandemic of 2020. Holdings of the SPDR Gold Trust, the world's largest gold ETF, are also at a three-year high.

The participation of ETF capital is a decisive factor in pushing prices to new heights. Natasha Kaneva, commodity strategist at JP Morgan, predicts that central banks can continue to support gold, but for prices to break out higher, a strong return of ETF capital is needed.

She targets a price of $3,675 an ounce by the end of this year and could reach $4,250 by the end of 2026. UBS is even more optimistic, saying prices could hit $4,000 an ounce if geopolitical conditions worsen.

However, there is one large segment of the market that is sitting on the sidelines: the jewelry industry. Gold demand for jewelry, the largest source of physical demand, fell 14% in the second quarter of this year.

In the two leading consumer markets of China and India, consumers are turning away from gold due to high prices, reinforcing the view that the rally is driven by fear and financial haven demand, not traditional consumption.

The record price surge of gold above $3,500 an ounce is not a mere speculative bubble. It is the result of a tectonic shift in global perceptions of risk and value. It reflects an erosion of confidence in the traditional pillars of the financial system: central bank independence, the safety of Western sovereign debt, and the absolute dominance of the U.S. dollar.

As central banks lead a “quiet revolution” from paper (bonds) to metal (gold), they are sending a powerful message. Gold is returning to its historic status. Rather than a commodity, it is the ultimate form of money, a measure of instability and a last resort when confidence in the system is shaken.

Source: https://dantri.com.vn/kinh-doanh/giai-ma-con-dien-cua-gia-vang-the-gioi-20250903102631349.htm