The U.S Government Shutdown Fuels Gold's Rise to $4,000 for the First Time

Gold prices surged past the historic $4,000-per-ounce mark for the first time ever, fueled by renewed concerns about the U.S. economy and a looming government shutdown. The rally marks a major milestone for the precious metal, which traded below $2,000 just two years ago and has now delivered stronger returns than equities over the past two decades.

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This year alone, gold has gained more than 50%, driven by fears surrounding global trade tensions, questions about the Federal Reserve’s independence, and worries over America’s fiscal health.

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Adding to gold’s appeal, heightened geopolitical risks have pushed investors toward safe-haven assets, while central banks have continued buying bullion at a record pace.

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The momentum behind gold’s surge has only intensified as investors seek protection against potential market shocks tied to Washington’s budget gridlock. The start of the Fed’s rate-cutting cycle has further supported the metal, which tends to perform well when interest rates fall since it doesn’t offer yield.

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As a result, investors have been flocking to gold-backed exchange-traded funds (ETFs), with inflows in September marking their strongest month in more than three years.

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“Gold breaking $4,000 isn’t just about fear it’s about capital rotation,” said Charu Chanana, strategist at Saxo Capital Markets. “With economic data on pause and rate cuts on the horizon, real yields are easing, while AI-driven stocks look overextended. Central banks laid the groundwork for this rally, but retail investors and ETFs are now driving the next phase.”

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On Wednesday, bullion climbed as much as 1.3% to a record $4,037.10 an ounce before settling near $4,028 in Singapore trading.

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Historically, major gold rallies have coincided with periods of economic and political stress. The metal first crossed $1,000 after the global financial crisis, hit $2,000 during the COVID-19 pandemic, and reached $3,000 amid escalating trade tensions in 2020.

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Now, it has broken through $4,000 against the backdrop of fresh political friction  including President Donald Trump’s attacks on the Fed, threats toward Chair Jerome Powell, and attempts to oust Governor Lisa Cook raising questions about the central bank’s autonomy.

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A weakened and politically influenced Fed could create a “Goldilocks” scenario for bullion. Lower interest rates and rising inflation tend to enhance gold’s appeal as an inflation hedge. “We expect gold to hit a cyclical peak when markets grow most concerned about Fed independence,” analysts at Macquarie Bank wrote in a recent note. “If a compromised Fed makes policy errors, gold’s gains could be even greater.”

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This year’s rally has set gold on track for its best annual performance since the 1970s a decade defined by runaway inflation and the end of the gold standard. Back then, President Richard Nixon pressured the Fed to lower rates, and under Chair Arthur Burns, the central bank made only limited attempts to maintain independence, ultimately fueling volatile inflation. That episode, according to monetary policy experts, serves as a cautionary tale for today’s investors.

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“The reason investors are buying gold and why they should be is its diversification benefit,” said Stephen Miller, investment strategy advisor at GSFM. “We’re still in the early stages of that sentiment shift, and gold will increasingly be seen as a key part of prudent portfolio management.” Miller added that he expects prices could reach $4,500 by mid-2026.

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Billionaire investor Ray Dalio echoed that sentiment, calling gold “certainly” a stronger safe haven than the U.S. dollar. The Bridgewater Associates founder compared the current rally to the explosive gains of the 1970s. His comments came shortly after Citadel’s Ken Griffin suggested that gold’s surge reflects rising anxiety over the stability of the U.S. currency.

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“The climb to $4,000 reflects more than just safe-haven demand,” said Hebe Chen, an analyst at Vantage Markets in Melbourne. “It also signals a growing distrust in paper assets as fiscal and geopolitical risks intensify.” Chen added that after such a steep advance, gold could enter a short-term consolidation phase.

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Central banks have played a pivotal role in fueling the rally, shifting from net sellers to major buyers since the global financial crisis. Their buying spree accelerated after the U.S. and its allies froze Russia’s foreign reserves in 2022, prompting many nations to diversify their holdings. Fears of inflation and speculation that the U.S. might favor domestic creditors have further boosted gold’s appeal as a strategic reserve asset.

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According to Lina Thomas, a commodities strategist at Goldman Sachs, elevated central bank demand represents “a structural shift in global reserve management.” She added, “We don’t expect a near-term reversal our base case assumes strong official-sector accumulation for at least another three years.”

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Reflecting this outlook, Goldman Sachs raised its gold price target for December 2026 to $4,900 an ounce, up from $4,300.

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Other precious metals joined the rally. Silver climbed as much as 2.3% to $48.94 an ounce its highest level since April 2011 while platinum and palladium also gained. Meanwhile, the Bloomberg Dollar Spot Index ticked 0.2% higher, showing that investors are diversifying across multiple asset classes despite the greenback’s modest strength.

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