Gold and silver surged to all-time highs, as rising geopolitical tensions and bets on further U.S. interest rate cuts added momentum to their best annual performance in more than four decades.

Gold and silver rose 2.1% to surpass their previous record of $4,381 an ounce set in October, while silver gained 3.4%, approaching $70 an ounce. This move extended a remarkable rally that has put both metals on track for their strongest annual performance since 1979.

This latest surge came as traders bet the Federal Reserve would cut interest rates twice by 2026, and as U.S. President Donald Trump also advocated for looser monetary policy. Lower interest rates are typically a boost for precious metals, which pay no interest.

Rising geopolitical tensions have also increased the appeal of gold and silver as safe-haven assets. The US has tightened its oil blockade on Venezuela, increasing pressure on President Nicolás Maduro's government, while Ukraine has attacked oil tankers belonging to a shadow Russian fleet in the Mediterranean for the first time.

"Today's rally is largely driven by pre-positioning around Fed rate cut expectations, reinforced by thin year-end liquidity," said Dilin Wu, a strategist at Pepperstone Group Ltd. Slow job growth and lower-than-expected US inflation in November support the narrative for more rate cuts, he said.

Gold has surged more than 65% this year, supported by increased central bank buying and inflows into bullion-backed exchange-traded funds (ETFs). Trump's aggressive moves to reshape global trade—as well as his threats to the independence of the US central bank—added fuel to the fiery rally earlier this year.

Investors have also played a significant role in gold's rise, fueled in part by the so-called currency debasement trade—a withdrawal from government bonds and the currencies used to denominate them due to concerns that their value will erode over time due to ballooning debt levels. Gold-backed ETFs have seen rising inflows for the past four consecutive weeks, according to data compiled by Bloomberg, and World Gold Council figures show total holdings in these funds have risen every month this year except May.

Other precious metals also surged, with palladium rising 5.1% to its highest level in nearly three years. Platinum rose for the eighth straight session and traded above $2,000 for the first time since 2008.

Gold has recovered quickly after declining from its peak in October, when the rally was deemed overhyped and overheated, and is now positioned to carry those gains into next year. Goldman Sachs Group Inc. is among several banks predicting prices will continue to rise into 2026, issuing a base case of $4,900 an ounce with upside risks. ETF investors, it said, are starting to compete with central banks for limited physical supplies.

Central bank purchases, physical demand, and geopolitical hedging are "medium- to long-term anchors, while Fed policy and real interest rates continue to drive cyclical fluctuations," according to Pepperstone's Wu. New entrants to the gold market, such as stablecoin issuers like Tether Holdings SA and certain corporate treasury departments, are creating a "broader capital base" that "adds resilience to demand," he said in a note.

The recent rise in silver prices has been supported by speculative inflows and lingering supply dislocations in major trading centers following the historic short squeeze in October. Total trading volume for silver futures contracts in Shanghai surged earlier this month to levels approaching those seen during the crisis a few months ago.

Platinum—which has surged about 125% this year—has gained further momentum in recent days as the London market shows signs of tightening. Banks are storing more metal in the US to hedge against tariff risks, while exports to China remain strong as demand grows and contracts begin trading on the Guangzhou Futures Exchange.

Spot gold rose 2.1% to $4,429.99 an ounce at 10:45 a.m. in New York. Silver rose 2.7% to $68.96 an ounce. The Bloomberg Dollar Spot Index fell 0.4%. (alg)

Source: Bloomberg