Gold rose to a new record above $4,200 an ounce and silver surged, driven by escalating US-China tensions and speculation that the Federal Reserve will cut interest rates twice more this year.

The price of gold bullion rose as much as 1.8% to a peak of $4,218.29 on Wednesday. Spot silver prices rose more than 3%, while the availability of the precious metal in the London market remains limited. Silver had a volatile day on Tuesday, when prices surged to an all-time high above $53.55 an ounce before falling sharply.

US Treasury yields fell to their lowest level in months after Fed Chairman Jerome Powell signaled that the US central bank is on track to cut interest rates by another quarter point later this month. Lower yields and borrowing costs tend to benefit precious metals, which do not pay interest.

Meanwhile, risk-off sentiment has risen—boosting gold's appeal as a safe-haven asset—after President Donald Trump issued new trade threats against China. The comments sparked renewed tensions in relations between the world's two largest economies, with Beijing vowing to retaliate after Washington threatened additional 100% tariffs on China last week.

In silver, the market has been gripped by a lack of liquidity in London, sparking a worldwide rush for the metal and sending benchmark prices soaring above futures in New York. The spread between the two markets on Wednesday was around $1.05 an ounce, while one-month annualized silver borrowing costs were around 17% on Tuesday, both historic highs.

Traders remain cautious ahead of the conclusion of the US government's Section 232 investigation into critical minerals, which could lead to import tariffs on certain commodities. Although silver is not on the US Geological Survey's current list of critical minerals, it is among six proposed additions to the 2025 draft list under consideration.

The four major precious metals have surged between 60% and 82% this year, in a rally that has dominated commodity markets. Gold's rise has been supported by central bank buying, increased holdings in exchange-traded funds (ETFs), and the Fed's interest rate cuts.

Demand for safe-haven assets has been fueled by recurring US-China trade tensions, threats to the Fed's independence, and the US government shutdown. Investors have also sought safety in precious metals to protect themselves from the threat posed by runaway budget deficits—a phenomenon known as the "dip trade." Central bank buying has also been a key driver of gold's price rise.

Much of the gold rally "is driven by physical buying, and if you look at central banks, they're going out and buying in large quantities," said Saad Rahim, chief economist at Trafigura Group. Concerns about debt sustainability and the prospect of lower interest rates have investors "looking at gold as a store of value and safety," he said. Spot gold was trading 1.2% higher at $4,191.73 an ounce at 5:10 p.m. in London. Palladium and platinum also rose. (alg)

Source: Bloomberg