Gold's Record $4,000 Level: Is the Rally Sustainable?

The price of gold has shattered records, hitting $4,000 per ounce in September 2025, driven by a confluence of central bank policy divergence, macroeconomic risks, and geopolitical uncertainty. But is this rally sustainable?

Central Bank Policy Divergence: A Tailwind for Gold

The U.S. Federal Reserve's decision to initiate a rate-cutting cycle in September 2025 marked a pivotal shift in global monetary policy. With the Fed projecting a federal funds rate of 3.6% for 2025 and longer-term expectations converging to 3.0%, the central bank signaled a deliberate pivot to balance growth and inflation, according to the FOMC projections. This easing contrasted sharply with the European Central Bank's (ECB) cautious approach, which opted for smaller incremental cuts amid fragile eurozone growth and inflationary pressures, as noted in an S&P Global analysis. Meanwhile, the Bank of Japan (BOJ) faced headwinds from U.S. tariff policies, complicating its path to normalize rates, according to the DPAM Outlook 2025.

This divergence has created a fertile environment for gold. Lower U.S. rates reduce the opportunity cost of holding non-yielding assets like gold, while the dollar's weakening against the euro and yen amplifies gold's appeal as a hedge, as highlighted in the Discovery Alert forecast. Central banks, particularly in emerging markets, have capitalized on this dynamic, adding over 800 tons of gold to reserves in 2024 and projecting continued purchases through 2026, according to an Economies.com report. This trend reflects a structural shift toward de-dollarization, as nations diversify reserves amid geopolitical tensions and sanctions risks, as reported in an AP News article.

Macroeconomic Risks: Fueling Demand for Safe-Haven Assets

Gold's surge to $4,000 has been further propelled by macroeconomic risks. The U.S. government shutdown in early 2025 and escalating trade tensions under President Trump's tariff policies have heightened uncertainty, pushing investors toward safe havens, as noted in a CBS News piece. Meanwhile, inflation expectations remain divergent: the Fed anticipates PCE inflation to stabilize at 2.0%, while the ECB and Bank of England face weaker growth and higher inflation, necessitating more aggressive rate cuts, according to a Twelve Points review.

Geopolitical volatility-ranging from the Russia-Ukraine war to Middle East instability-has reinforced gold's role as a store of value. According to a New York Times article, central banks in Poland and China alone accounted for 244 tons of gold purchases in Q1 2025, underscoring the asset's strategic importance.

Sustainability of the Rally: A Mixed Outlook

While the current drivers-central bank demand, ETF inflows, and dollar weakness-suggest a bullish trajectory, risks loom. A resurgent U.S. dollar, spurred by stronger-than-expected economic data or geopolitical stability, could temper gold's ascent, as noted in a Bullion Trading analysis. However, major institutions remain optimistic. Goldman Sachs has raised its 2026 gold price forecast to $4,900 per ounce, citing sustained central bank buying and ETF inflows in a Goldman Sachs forecast. J.P. Morgan projects an average of $3,675/oz by Q4 2025, with prices climbing toward $4,000 by mid-2026, according to J.P. Morgan research.

The key question is whether central bank policy divergence will persist. If the Fed continues to ease while the ECB and BOJ maintain cautious stances, gold's safe-haven appeal is likely to endure. Conversely, a synchronized tightening cycle or a resolution of geopolitical tensions could curb demand.

Conclusion

Gold's record $4,000 level is a product of divergent monetary policies, macroeconomic fragility, and geopolitical uncertainty. While short-term volatility is inevitable, the structural shift toward central bank gold accumulation and the dollar's relative weakness suggest the rally has legs. Investors should monitor policy developments and geopolitical risks, but the case for gold remains compelling through 2026.