Gold Overtakes Treasuries as Central Banks Fuel Record $3,800 Surge

Gold prices surged to record highs above $3,800 an ounce in early October 2025, driven by escalating concerns over a potential U.S. government shutdown and expectations of Federal Reserve rate cuts. The precious metal extended its rally amid weak inflation data and political uncertainty, with traders pricing in an 88% probability of a 25-basis-point cut at the Fed’s October meetingGold Hits New Record Above $3,800 on US Government Shutdown Jitters^[1]. Central bank demand, particularly from China and emerging markets, has also fueled the rally, with global official gold reserves surpassing U.S. Treasury holdings in value for the first time in 30 years. Analysts note that gold’s inverse correlation with the U.S. dollar and its role as a safe-haven asset are amplifying its appeal during periods of economic and political instabilityGold Rises to Record High Above $3,800 on Growing Risk of US…^[2].

The looming risk of a U.S. government shutdown, triggered by stalled funding negotiations, has intensified market jitters. A prolonged partial shutdown could disrupt economic data releases and delay critical approvals in sectors like healthcare and defense, potentially slowing growthAs Government Shutdown Risk Looms, Here’s The Likely Market^[3]. Historically, even brief shutdowns have introduced volatility, though their impact on gold prices has been limited unless accompanied by broader economic deterioration. However, the current environment—marked by a weakening labor market and heightened geopolitical tensions—has made gold a preferred hedge. Nicky Shiels of MKS PAMP SA highlighted that gold is "internalizing an expected subdued jobs growth in September and perhaps some U.S. shutdown threat," reflecting its sensitivity to macroeconomic risksGold Rises to Record High Above $3,800 on Growing Risk of US…^[2].

Central banks remain a cornerstone of gold’s strength, with the People’s Bank of China (PBoC) adding reserves for the 10th consecutive month in August 2025. Global central banks have steadily shifted away from U.S. Treasuries, driven by diversification strategies and concerns over dollar volatility. This structural realignment has pushed gold to its highest share of global official reserves in decades, with the metal now accounting for 19% of holdings compared to 16% for the euro. Analysts attribute this trend to de-dollarization efforts and the perception of gold as a neutral, liquid asset in an era of geopolitical fragmentation.

The Federal Reserve’s policy trajectory further supports gold’s ascent. Weak U.S. labor market data, including a surprise 22,000 nonfarm payrolls addition in August 2025, has reinforced expectations of aggressive rate cuts. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, while a weaker dollar boosts demand from international buyers. Tai Wong, an independent metals trader, noted that the Fed’s cautious approach to rate cuts "will not prevent the continuation of gold’s rally," as the metal’s safe-haven appeal remains intactGold Hits New Record Above $3,800 on US Government Shutdown Jitters^[1]. Futures markets reflect this sentiment, with gold ETF inflows reaching $5.5 billion in August 2025—the strongest since 2020.

Despite the bullish outlook, risks persist. A stronger-than-expected U.S. dollar or rapid disinflation could dampen gold’s momentum, as higher real yields and reduced inflationary pressures would make yield-bearing assets more attractive. Additionally, a resolution of geopolitical conflicts or a swift end to the government shutdown could temper safe-haven demand. However, long-term fundamentals—such as central bank accumulation and persistent fiscal uncertainties—suggest a structural floor for gold prices. Institutional forecasts from Goldman Sachs and UBS project gold to test $4,000–$4,500 by 2026, driven by sustained demand and evolving monetary policies.

The convergence of political, monetary, and geopolitical factors has positioned gold as a critical component of diversified portfolios. With central banks, investors, and speculative traders all contributing to its momentum, the precious metal appears poised to maintain its elevated status. As Tai Wong observed, "Gold is now in a unique position where it is being driven by both policy expectations and real-world uncertainties," a dynamic that underscores its role as both a hedge and a strategic assetGold Hits New Record Above $3,800 on US Government Shutdown Jitters^[1].