Central Banks Drive Gold Past $4,000 as Dollar Reserves Diversify

Gold prices surged past $4,000 per ounce in early October 2025, marking a historic milestone driven by a confluence of macroeconomic and geopolitical factors. Spot gold climbed 1% intraday, with prices hitting $4,007.90 on October 7, reflecting heightened demand for safe-haven assets amid a U.S. government shutdown, geopolitical tensions, and expectations of Federal Reserve rate cuts Deseret.com^[1]. Analysts attribute the rally to a weakening U.S. dollar, central bank gold accumulation, and institutional inflows into gold-backed exchange-traded funds (ETFs).

The U.S. government shutdown, which began in early October, intensified investor caution, pushing capital into non-yielding assets like gold. "Gold has long proven its effectiveness as a portfolio diversifier of risk," noted Heng Koon How, head of markets strategy at UOB. The shutdown follows a broader pattern of volatility, including rising U.S.-China trade tensions and political instability in France and Japan Goldman Sachs^[5].

Central bank demand has been a critical driver. Since 2022, emerging markets have accelerated gold purchases, with countries like China, India, and Turkey adding over 1,000 tonnes annually. Goldman Sachs Research estimates that central banks have purchased an average of 64 tonnes per month in 2025, with 43% of surveyed central banks planning to increase gold holdings . This trend reflects a strategic shift away from dollar-dominated reserves, as highlighted by the World Gold Council, which reports that 95% of surveyed central banks anticipate higher global gold reserves in the next 12 months.

The Federal Reserve's dovish monetary policy further bolstered gold's appeal. Analysts project two 25-basis-point rate cuts by year-end, with the first expected at the October 28-29 Federal Open Market Committee (FOMC) meeting. Lower real yields reduce the opportunity cost of holding non-income-generating assets like gold, a factor underscored by Christopher Wong, a foreign exchange strategist at OCBC. "Gold has historically outperformed during easing cycles," he added Goldman Sachs^[5].

Goldman Sachs has raised its gold price target to $4,900 per ounce by December 2026, citing "sticky" demand from central banks and ETFs. The firm forecasts 80 metric tons of central bank purchases in 2025 and 70 tons in 2026, alongside a 100-basis-point Fed rate cut by mid-2026. This aligns with broader market sentiment, as gold has gained over 50% year-to-date, outpacing equities, Bitcoin, and crude oil CMI-Gold-Silver.com^[6].

Retail and institutional investors have also flocked to gold. Inflows into gold-backed ETFs reached $64 billion year-to-date, with $17.3 billion added in September alone. The SPDR Gold Shares (GLD), the largest gold ETF, saw its price jump to $364.38, reflecting heavy institutional demand Deseret.com^[1]. Meanwhile, speculative positioning in derivatives markets remains bullish, with net long gold bets on COMEX in the 73rd percentile since 2014 .

Despite the sharp rally, analysts caution against overbought conditions. OCBC's Wong noted that a short-term corrective pullback is possible if the government shutdown resolves quickly. However, structural drivers-such as a weakening dollar, persistent geopolitical tensions, and central bank diversification-remain supportive. Julius Baer's Carsten Menke emphasized that "the trend is your friend," with gold's rally underpinned by longer-term fundamentals rather than speculative trading Goldman Sachs^[5].

The surge has also impacted Asian markets, where tariffs and currency depreciation exacerbated inflationary pressures. India, the UAE, and Vietnam saw gold prices rise 3.5–4% in three weeks, driven by U.S. tariffs on exports and local currency depreciation. China's central bank continued large-scale gold accumulation as a hedge against trade sanctions FinancialContent.com^[4].

Gold's performance in September 2025 underscored its resilience, with prices rising 10.6% for the month alone. The dollar index's decline and expectations of Fed easing were primary factors, while industrial demand for silver and platinum also surged, driven by supply shortages and green energy adoption .