Gold breaks through $3,500, ushering in a new era! Interest rate cut expectations and political risks serve as dual engines

The Zhitong Finance APP noted that gold prices have surpassed $3,500, setting a new historical high. The prospects of the Federal Reserve cutting interest rates and growing concerns about its future have injected new momentum into the years-long rally of precious metals.

During early Asian trading on Tuesday, spot gold prices rose by as much as 0.9%, reaching a historical high of $3,508.73 per ounce, breaking through the previous high set in April. This precious metal has risen over 30% this year, becoming one of the best-performing commodities.

Gold is the preferred safe-haven asset during times of political and economic turmoil, typically benefiting from a low-interest-rate environment. This year, gold has also gained support as investors sought safety from the market turmoil triggered by the global trade war initiated by U.S. President Trump. The president's escalating attacks on the Federal Reserve have become the latest concern for investors, as worries about the central bank's independence may erode confidence in the U.S.

The supporting factor for this recent rally is the market's expectation that the Federal Reserve will cut interest rates this month, following cautious signals from Fed Chairman Jerome Powell about the possibility of rate cuts. A key U.S. employment report set to be released this Friday may further demonstrate the increasingly sluggish labor market—providing justification for rate cuts. This enhances the appeal of precious metals that do not pay interest to holders.

UBS Group strategist Jonny Teves stated, "Investors are increasing their holdings of gold, especially as the Fed's interest rate cuts are imminent, driving up gold prices. Our fundamental forecast is that gold prices will continue to reach new highs in the coming quarters. The low-interest-rate environment, weak economic data, and rising macroeconomic uncertainty and geopolitical risks enhance gold's role as a portfolio diversification tool."

Gold and silver have doubled in a three-year bull market

Over the past three years, both gold and its lower-priced "relative" silver have more than doubled in price, driven by rising risks in geopolitics, economics, and global trade, which have increased demand for these historically safe-haven assets. This year, Trump's escalating attacks on the Federal Reserve have become the latest concern for investors, as worries about the Fed's independence may weaken confidence in the U.S.

The market is awaiting a court ruling to determine whether Trump has just cause to dismiss Fed Governor Cook from the central bank. Additionally, a federal appeals court stated that the president illegally imposed global tariffs under the emergency powers act, increasing uncertainty for U.S. importers while also delaying the economic dividends promised by the government.

The last time gold surged to record highs was in April when Trump announced a preliminary plan to impose comprehensive tariffs on most U.S. trading partners. As the president withdrew some of the most aggressive trade proposals, safe-haven demand cooled, and gold prices quickly retreated, maintaining a range-bound fluctuation for several months "The space above $3,500 has yet to be determined, so the market will closely monitor price movements. The last time gold prices broke through $3,500 was during intraday trading, so we are eagerly watching whether gold can close above that level intraday, as this could bring some upward momentum," said Christopher Wong, a foreign exchange strategist at OCBC Bank. "The risks of new geopolitical tensions and policy uncertainties resurfacing still exist, which will be favorable for gold prices."

Meanwhile, silver's rally continues to outperform gold. So far this year, silver prices have risen over 40%, with prices on Monday breaking above $40 per ounce for the first time since 2011. Silver is also valued for its industrial uses in clean energy technologies such as solar panels.

According to the Silver Institute, the market is expected to face a supply shortage for the fifth consecutive year against this backdrop. A weaker dollar has also boosted the purchasing power of major consuming countries like China and India.

Investors have flocked to silver ETFs, with holdings increasing for the seventh consecutive month in August. This has led to a reduction in silver inventories in London, keeping the market tense. Leasing rates (which reflect the cost of borrowing silver, typically short-term) remain high at around 2%, well above the near-zero normal levels.

Concerns over potential U.S. tariffs have also supported precious metal prices, as silver was added to Washington's list of critical minerals last week, which already includes palladium