Gold is at a record high, with silver also strongly up, as US monetary policy raises fears of dollar inflation, adding to a prolonged push toward safe-haven assets. 

Gold is currently trading at over US$3,500/oz. Silver broke through US$40/oz this week, its highest level since 2011.

The price is up more than 30% since the start of 2025, driven by geopolitical uncertainty and strong buying by central banks. 

Driving this strength is the growing belief that the US Federal Reserve is in dovish mode, prioritising employment over controlling inflation. 

"Expectations of a US Federal Reserve interest rate cut in September, with a 90% probability of a quarter-point reduction, has significantly boosted gold's appeal as a non-yielding asset, following [Fed chair Jerome] Powell's dovish stance at Jackson Hole," Berenberg said in a note. 

"ETF inflows continue to support the price with 15 tons added in the last two days before September 2, 2025, and year-to-date inflows of 310 tonnes, with notable strength in US and Chinese holdings," Berenberg added.

Politicising the Fed

"There are a couple of dimensions to this," Philip Newman, managing director at Metals Focus, told Mining Journal. "There's the expectation of a rate cut, which seems as nailed on as these expectations can be for this month. Then there's the independence argument. And I think we shouldn't underestimate how important that has been."

Donald Trump has alarmed markets with repeated attacks on the US central bank government, making clear his preference for looser monetary policy.

Traders are awaiting a landmark ruling on whether Trump has the power to fire Fed governor Lisa Cook, and replace her with a more dovish candidate. 

Newman said the prospect of Powell's term ending in May next year was also "unsettling markets".

In addition, there are concerns over US debt, which could rise on Trump's proposed ‘Big Beautiful Bill', which would cut taxes and increase defence and border spending, with only some welfare and health cuts to balance these costs. 

"I think the dollar has come under pressure. It's not about to lose its safe haven status, by any stretch, but it is certainly causing one to question that role," Newman said.

Another layer of uncertainty comes from a decision by a federal appeals court that said late Friday that Trump's imposition of new tariffs was illegal. 

Attention now turns to US nonfarm payrolls data due on Friday, which could give further clues to the path of central bank policy. 

"Within the policy landscape, real yields remain the key variable for gold," Linh Tran, market analyst at XS.com, said. 

"Each time US economic data signals a slowdown, expectations for imminent Fed rate cuts rise, pushing bond yields lower and providing direct support for gold." 

"This is the clearest transmission channel explaining why gold reacts strongly to labour market data, inflation releases, and Fed communications."

Central bank buying

The latest rally has been fueled by expectations that the US central bank will lower interest rates for the first time in nine months, after Fed Chair Jerome Powell cautiously opened the door to a monetary easing.

Meanwhile, the longer-term demand driver, central bank buying, remains strong. 

"From a central bank point of view, we have had three years of either record or close to record buying. Even if central bank demand this year is a bit down from last year, it will still be a very decent figure," Newman said.

Newman said liquidations in the physical market were likely to cap gold gains in the short term, but the longer-term picture remained supportive.

"This is uncharted territory."