What does gold’s relentless rally mean?

Gold continues to surge, continually setting fresh record highs and refusing to lose momentum. What began as a defensive trade has evolved into a global repricing of value. This week the metal reached levels above $4,000/ounce, driven by a combination of structural demand, waning confidence in the dollar and a shift in central-bank-reserve strategy. The rally has spilled across markets, buoying commodity-linked currencies and helping the rand strengthen to its firmest levels since September 2024.

Three pillars behind the rally

1. Monetary policy
Markets are positioned for a deeper United States (US) Federal Reserve (Fed) easing cycle following the 25-basis point cut on 17 September, which lowered the funds range to 4.00% to 4.25%. Real yields have slipped, reducing the opportunity cost of holding gold. Investors now view bullion as an active allocation against policy uncertainty and fiscal imbalances rather than as a passive hedge.

2. Central bank buying
Official-sector purchases remain robust, though below the extraordinary pace of 2023. According to the World Gold Council, net central bank additions reached 244 tonnes in the first quarter of 2025. Poland has led with 67 tonnes year-to-date, while the People’s Bank of China extended its accumulation streak to 11 consecutive months through September. The motivation goes beyond diversification – it signals a strategic retreat from dollar concentration and sanction exposure. Such sovereign buying provides a firm floor for speculative flows to build on.

3. Geopolitical recalibration
Trade frictions, tariff disputes and regional conflicts have shifted perceptions of safety. Where investors once sought refuge in US Treasuries, they now question whether assets tied to US fiscal policy still qualify as risk-free. Gold’s neutrality has elevated it from crisis hedge to long-term reserve component.

Dollar diversification and market psychology

The rally is no longer purely defensive. A weaker dollar has amplified it. The US Dollar Index (DXY) fell roughly 11% in the first half of 2025, its steepest first-half decline in decades, before recovering partway. It remains about 3% t0 4% lower year-on-year. As capital rotates out of dollar assets, a portion inevitably lands in gold. The same dynamic lifts commodity currencies and equity markets. This is not the panic-driven “fear trade” of 2020 – it reflects a structural realignment toward a multipolar reserve system.

When central banks expand holdings, private investors interpret it as validation rather than speculation. Exchange traded fund inflows and futures positions have followed official demand, turning each dip into a buying opportunity. Momentum has become self-reinforcing; sustained until liquidity or policy narratives shift.

The rand’s tailwind: gold, the dollar and carry

The rand’s rally this week to around R17.07/$ mirrors these global shifts. Gold’s ascent has boosted South Africa’s terms of trade, with South African Revenue Services (SARS) data showing total exports of R184.3 billion in July 2025, with the “Precious Stones and Metals” category contributing roughly R35 billion, highlighting the sector’s resilience even with a stronger currency.

Meanwhile, offshore investors continue to favour South African bonds. Long-dated South African government bonds still offer yields near 10%, standing out in a world of declining developed-market rates. With the Fed easing and the dollar softening, carry (where traders profit from taking advantage of the interest rate differential between different countries’ bond yields) has become king again, attracting yield-seeking flows rather than short-term speculation – a critical underpin for the rand.

A supportive backdrop adds oxygen as global equities rally, volatility remains subdued and capital is diversified out of the dollar bloc. The rand benefits directly from that rotation. The softer DXY supports both gold and risk appetite for high-yielding emerging-market assets, creating a feedback loop of soft dollar, strong gold, firmer rand.

Still, valuation boundaries are tightening. Domestic structural issues, including sluggish growth, fiscal strain and infrastructure bottlenecks remain, even if temporarily overshadowed by stronger external flows.

What comes next

Gold’s rally remains underpinned by strong fundamentals, but momentum could moderate if the macroeconomic backdrop shifts. Central bank demand continues to provide a steady base, while subdued real yields still support non-yielding assets. However, the pace of gains will likely hinge on how US monetary policy, fiscal conditions and global risk sentiment evolve over the coming months.

For South Africa, the combination of firm commodity prices and supportive global liquidity has so far contributed to favourable external balances and rand resilience. Nonetheless, local constraints – including slow growth, fiscal pressures and infrastructure challenges – remain part of the local broader risk picture. South Africa’s outlook will depend on the interaction between these domestic realities and global capital flows rather than on any single driver.

A look at the markets

This week’s key themes:

• Credible SARB assists global investors to favour local debt
• Wall Street closes in the red, futures, however, point positive
• Gold retreats from its highest level on record but still set for an eighth weekly gain
• Dollar set for its best weekly performance for the year

Bonds

Yields on US Treasuries are largely unchanged, with the 10-year yield holding near 4.14% as political deadlock in Washington keeps markets on edge. The federal shutdown, now stretching into its ninth day, has frozen the release of key economic indicators that normally guide monetary policy decisions. Fed meeting minutes indicated that policymakers agree that there is sufficient strain on the labour market to warrant further policy easing, even as inflation concerns remain. Futures markets still expect a 25-basis point cut at the next meeting, though bets on a December follow-up move have dropped to around 80%. Investor appetite was muted at the latest 10-year auction as the US government standoff clouds the near-term outlook.

The United Kingdom’s (UK’s) Gilt yields are hovering around 4.73%, reflecting investor caution ahead of the November budget and mounting questions over UK fiscal sustainability. UK Chancellor of the Exchequer, Rachel Reeves, faces the challenge of keeping growth intact after hiking employer social contributions by £25 billion in her first budget. UK inflation is projected to edge back up to 4% by year-end – double the Bank of England’s (BoE’s) target – while markets push back expectations for another rate cut to April 2026. BoE Chief Economist, Huw Pill, called for a restrained policy stance focused on inflation, countering calls for closer coordination with fiscal authorities as borrowing costs rise.

German Bunds are steady at roughly 2.7%. Weaker trade numbers showed exports and imports both contracting, underscoring softness in Europe’s largest economy. Meanwhile, investors are keeping an eye on France’s political reshuffle and the extended US shutdown for broader market implications.

South African bonds strengthened further, pulling the 10-year yield down to around 9%, its lowest level since January. Global investors continue to favour local debt for its high real yields, anchored by the credibility of the South African Reserve Bank (SARB) and contained inflation. SARB Governor, Lesetja Kganyago, reiterated the bank’s long-term goal of holding inflation near 3%, arguing that durable price stability fosters investment and employment. A steadier rand, improved electricity supply and firmer reserves have bolstered sentiment, leaving South Africa among the better-performing emerging-market debt stories of the quarter.

Equities

US stock futures were steady this morning, following a modest pullback during overnight trade, as investors reassessed the rally driven by artificial intelligence (AI), Fed rate expectations and the extended US government shutdown. The Dow fell 0.52%, while the S&P 500 and Nasdaq each lost around 0.3%. The US government shutdown, now in its ninth day, continues to delay economic data releases that could guide Fed policy. Focus is turning to third-quarter earnings, with major banks such as JPMorgan and Citigroup reporting next week. Airline, Delta Airlines and beverage giant, PepsiCo, each gained over 4% after upbeat results signalled firm consumer demand.

In the UK, the FTSE 100 slipped 0.4% to 9,509, weighed down by major banks, HSBC and Lloyds. HSBC dropped 5.4% after announcing plans to privatise its Hang Seng Bank unit and suspend share buybacks, while Lloyds fell 3.3% on fresh compensation provisions. General insurance group, IAG, rose 3.2% on strong earnings and miners benefited from firmer copper prices.

European indices tracked lower, with the STOXX 50 and 600 each down about 0.4%. Luxury car manufacturer, Ferrari, plunged 15% after cutting EV targets, while retail brands LVMH, Hermès and L’Oréal declined up to 2.6%. Global healthcare company, Novo Nordisk, eased 1.1% after announcing its $4.7 billion Akero Therapeutics (clinical stage company) deal.

In South Africa, the JSE All Share retreated 0.66% to 110,243 but remains up 6.4% in a month and 29% over the year, supported by mining gains, strong foreign inflows and renewed investor confidence in local assets.

Commodities

Brent crude steadied near $65/barrel, extending yesterday’s session weakness as geopolitical tensions in the Middle East showed signs of easing. Israel and Hamas have reached an initial ceasefire agreement – a pivotal step in US- and Qatari-brokered negotiations to end the two-year conflict. Despite softer risk premiums, crude remains on track for a weekly advance, bolstered by fresh US sanctions on more than 50 entities and individuals linked to Iran’s energy trade, including a major Chinese refinery and an Iranian export hub. Data from the Energy Information Agency showed US crude inventories rising for a second week but staying close to typical seasonal levels, while refined product and Cushing stocks declined. Earlier in the week, the expanded Organisation of the Petroleum Exporting Countries, OPEC+ announced a modest supply increase, undershooting market expectations for a more aggressive move.

Meanwhile, gold is trading around $3,980/ounce, heading for its eighth straight weekly gain after hitting record highs and topping $4,050/ounce earlier in the week. Gold lost nearly 2% yesterday but remains 3% up for the week. Yesterday, persistent macro uncertainty and renewed bets on US rate cuts continued to underpin demand. New York Fed President, John Williams, signalled that additional policy easing remains possible, though inflation concerns may slow the pace. Minutes from the latest Federal Open Market Committee meeting reflected a similar tone – policymakers acknowledged growing risks to employment but stayed wary of entrenched price pressures. The ongoing US government shutdown, now entering its second week, further clouded sentiment, delaying key data releases and prompting a brief pullback in bullion as investors booked profits after the ceasefire news.

Currencies

The US dollar climbed further this morning, following stronger overnight trade with the DXY holding above 99.3 and set for its best weekly performance in a year, advancing nearly 2%. The rally was driven by broad weakness in the yen and euro, as investors responded to diverging political and policy signals across major economies. The yen tumbled roughly 4% this week after former Economic Security Minister and conservative, Sanae Takaichi, secured Japan’s leadership, fuelling expectations of continued fiscal expansion and accommodative policy. Meanwhile, the US government shutdown has stalled key data releases, leaving traders to lean heavily on monetary policy expectations. Markets continue to price in a 95% probability of a 25-basis point Fed rate cut this month, with the likelihood of another reduction in December easing to around 80%.

The euro is hovering around $1.16/€, its weakest level since late August, weighed down by French political instability and sluggish German trade data. French President, Emmanuel Macron, faces the challenge of naming his sixth prime minister in less than two years, though the risk of snap elections appears to have diminished. Weak export and import figures added to concerns over the eurozone’s fragile recovery.

The British pound slipped to $1.33/£, a nine-week low, as markets grow cautious ahead of the UK’s November budget and potential fiscal tightening. Traders now only expect the next BoE rate cut in April 2026.

The South African rand eased slightly after touching 13-month highs in intraday trade. A stronger dollar and softer gold prices weighed overnight, though the currency remains around 1.8% firmer over the past month. Support continues to stem from high real yields and the SARB’s informal 3% inflation target, aimed at strengthening policy credibility and competitiveness.