Gold approaches $4,000 an ounce for the first time in history amid political uncertainty and economic risks

Global investors are flocking to gold, pushing its price up about 50% this year and approaching $4,000 an ounce for the first time in history, The New York Times reported.

This is the best year for gold since 1979, when the precious metal rose more than 100% amid high inflation, a weakening dollar and a crisis in the Middle East.

Analysts attribute the rally to increased demand from investors seeking safe havens to the dollar and U.S. bonds amid political instability in the United States and a government shutdown. The Federal Reserve is expected to continue cutting interest rates, further weakening the dollar, which has already lost about 10% this year.

Confidence in American assets has also been undermined by rising national debt and budget deficits: after this year’s downgrade by Moody’s, none of the major rating agencies give the United States its highest credit rating.

Other factors of instability include the resignation of the French prime minister less than a day after forming a government and the unexpected election of a new leader of Japan’s Liberal Democratic Party, who favors lower taxes and interest rates. This has weakened the euro and yen, directing capital into gold.

According to Goldman Sachs, in September alone, funds investing in gold bought more than 100 metric tons of the metal. The bank predicts that the price could reach $4,300 an ounce by the end of next year.

Barclays notes that the volume of inflows into the largest gold exchange-traded fund in the past two weeks has become the second largest in the past 20 years. Meanwhile, the New York Stock Exchange’s gold-mining index has doubled since the beginning of the year.

Analysts say that the rally has been driven not only by private investors but also by central banks, which are gradually shifting reserves from dollar-denominated assets to gold. “Gold is increasingly becoming a strategic reserve asset for both governments and institutions,” said Ryan McIntyre, managing partner at investment firm Sprott.

The uncertainty caused by the US government shutdown is also fueling demand for the precious metal. The lack of official economic data and a weak labor market are fueling fears of a recession or stagflation. As State Street Investment Management summarized, “prolonged weakness in the labor market increases the risk of a recession or stagflation, which supports interest in gold.”

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