Gold prices have skyrocketed to a record high, driven by investor demand for safe-haven assets after the US government shutdown.
Spot gold climbed to $3,875.53 per ounce, fueled by worries about the shutdown and a weaker dollar. According to Michael Brown from Pepperstone, “I remain strongly of the view that (investors) should continue to look through the political noise as, in the grand scheme of things, the expiration of federal funding doesn’t make especially much difference.”
The shutdown has led to increased uncertainty, driving investors to safe-haven assets like gold. The US government shutdown could delay the release of key economic data, including the non-farm payrolls report due on Friday. This uncertainty has boosted gold prices, which tend to thrive in low-interest-rate environments.
Futures on all three main indexes in New York were in the red, with the Dow coming off a record. However, Asian equities held up, with Singapore, Seoul, Wellington, Taipei, Manila, Mumbai, Bangkok, and Jakarta all in positive territory along with London. The dollar retreated against its peers owing to concerns caused by the shutdown.
Democrats and Republicans remain at loggerheads on funding the government beyond Tuesday, the end of the fiscal year, with both sides blaming each other. Senate Republicans tried to rubber-stamp a House-passed temporary funding patch but couldn’t get the handful of Democratic votes required to send it to President Donald Trump to sign off. Trump threatened to punish Democrats during any stoppage by targeting progressive priorities and forcing mass public sector job cuts.
The shutdown could have significant economic implications, including the furlough of 750,000 federal workers at a daily cost of $400 million. According to Ricardo Evangelista, senior analyst at ActivTrades, “The dollar is weakening on the back of expectations of an increasingly dovish Fed. This dynamic has accelerated after a failed attempt to pass a spending bill triggered a government shutdown which could weigh on economic output.”
Markets are pricing in a 95% chance of a rate cut from the Federal Reserve in October, up from 90% from a day earlier. Anthony Saglimbene, chief market strategist at Ameriprise, said that if the shutdown lingers, September inflation reports in mid-October could also be negatively affected.
Gold has surged 47% this year, setting multiple records for central bank demand and the Fed’s resumption of interest rate cuts. Deutsche Bank AG and Goldman Sachs have said they expect the rally to continue. With the current market conditions, it’s likely that gold prices will continue to be influenced by US economic data and Fed policy decisions.
The shutdown has also impacted other markets, with oil prices steady after two consecutive days of losses as investors weighed potential OPEC+ plans for a larger output hike next month against the prospect of shrinking inventories in the US.
