Key Points
- Gold has surged past $5,000 an ounce for the first time.
- The rally is being driven by the “debasement trade,” with investors worried about massive government debt.
- A weakening U.S. dollar and geopolitical tensions are also fueling the gains.
- Goldman Sachs has raised its year-end gold price target to $5,400.
Gold prices have rocketed past the $5,000 an ounce mark, a major milestone that has come much earlier than Wall Street expected. The stunning rally, which is being mirrored in other precious metals like silver and platinum, is a clear sign of the growing anxiety in global financial markets.
The main driver of this “breathtaking and profoundly scary” rally is what’s known as the “debasement trade.” Investors are flocking to hard assets like gold to protect their wealth from the erosion of purchasing power. They are increasingly worried that governments around the world, saddled with massive debt, will try to “inflate away” their problems.
“We’re at the start of a global debt crisis,” wrote one senior fellow at the Brookings Institution.
A weakening U.S. dollar is also adding fuel to the fire. A falling dollar makes gold cheaper for buyers using other currencies, which in turn boosts demand.
Geopolitical tensions have also played a major role. The recent U.S. action in Venezuela and President Trump’s threats over Greenland have sent investors running for the safety of gold.
The rally has been so strong that Goldman Sachs recently raised its year-end price target for gold to $5,400 an ounce. They see the risks as “significantly skewed to the upside” as more and more private investors look to diversify their portfolios.
It’s not just gold. Silver topped $100 an ounce for the first time on Friday and is now trading above $109. Platinum and even the industrial metal copper have also hit new highs. This broad-based rally suggests that something much bigger than just central bank buying is at play.
