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Breaking: Gold edges higher to record high above $3,900 as US shutdown continues

  • Gold Price extends its upside near $3,920 in Monday’s early Asian session. 
  • Concerns over a prolonged US government shutdown and Fed rate cuts bets underpin the Gold price. 
  • Two more Fed rate cuts are expected this year.

Gold Price (XAU/USD ) attracts some buyers to a fresh record high around $3,920 during the early Asian session on Monday. Uncertainty surrounding a US government shutdown and expectations of the Federal Reserve (Fed) interest rate cuts support the precious metal. 

US Senators failed to pass spending proposals to reopen the federal government for a fourth time, extending the ongoing shutdown into a new week. Uncertainty surrounding a US government shutdown and delayed key data releases boost the safe-haven flows, benefiting the yellow metal. 

"I think the longer the government stays shut down, that's going to be a steady bullish element for the gold market. If they happen to have a surprise weekend agreement to open the government back up, that would probably be a bearish element," said Jim Wyckoff, senior analyst at Kitco Metals.

Furthermore, growing speculations about the US Fed rate cut in the upcoming meeting lift the precious metal. According to LSEG calculations, traders see a 25 basis points (bps) cut at the Fed's October meeting as almost certain. The rate futures market has priced in about 47 bps of rate declines for the remainder of the year or just under two reductions. 

Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. However, some profit-taking cannot be ruled out in the near term after the Gold extends the rally for the eighth consecutive week.  

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

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Lallalit Srijandorn

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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