Gold prices rose in the European market on Wednesday, extending gains for the fifth consecutive session, continuing to smash records and coming very close to reaching the $3,900 per ounce barrier for the first time in history, supported by the sharp decline of the US dollar after the government shutdown came into effect in the United States.
In addition, expectations that the Federal Reserve may cut interest rates twice before the end of this year provided support. To re-price those expectations, markets are awaiting the release of more key data on the state of the US labor market, which the Federal Reserve relies on heavily in determining its monetary tools.
Price Overview
• Gold prices today: Gold rose by 0.65% to ($3,884.17) as an all-time high, from the opening level of ($3,859.01), with a low of ($3,853.48).
• At Tuesday’s settlement, gold prices recorded a gain of 0.7%, marking the fourth consecutive daily increase, driven by concerns over the US government shutdown.
Massive Monthly Gain
Over the course of September trading, gold prices rose by about 12%, marking the second consecutive monthly gain and the largest monthly increase since August 2011.
These monthly gains, the biggest in 14 years, are attributed to strong safe-haven demand amid financial stability concerns in Europe, the UK, and the US, in addition to escalating global geopolitical tensions and expectations of US interest rate cuts.
US Dollar
The US dollar index fell on Wednesday by 0.45%, deepening its losses for the fourth consecutive session, hitting a one-week low at 97.48 points, reflecting continued weakness of the US currency against a basket of major currencies.
This decline came after the US government shut down after midnight, following Congress’ failure to pass funding bills, as Trump, the Republican, and the Democratic parties were unable to reach a last-minute temporary deal.
President Donald Trump warned Democrats in Congress on Tuesday that allowing a federal government shutdown would enable his administration to take “irreversible” actions, including shutting down key programs.
US Interest Rates
• Tuesday’s job openings report indicated a slight increase in vacancies in August, alongside a slowdown in hiring, pointing to weakening labor market strength.
• Following the data and according to CME’s FedWatch tool: pricing of probabilities for a 25-basis-point rate cut at the October meeting rose from 90% to 95%, while pricing of probabilities for holding rates unchanged fell from 10% to 5%.
• To re-price those expectations, markets are awaiting further key US labor market data later today with private payrolls, Thursday’s weekly jobless claims, and Friday’s September non-farm payrolls report.
Outlook for Gold
• Nicholas Frappell, global head of markets at ABC Refinery, said gold is benefiting from “concerns related to a weaker dollar, the political situation tied to the US government shutdown crisis, and broader geopolitical uncertainty.”
• Michael Hsueh, precious metals analyst at Deutsche Bank, said with reference to the rise in gold prices: “It is difficult to predict an immediate end, and we expect further strength in the near term.”
SPDR Fund
Gold holdings with SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose yesterday by 1.15 metric tons, marking the third consecutive daily increase, bringing the total to 1,012.88 metric tons, the highest since July 15, 2022.
