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| Gold prices |
Gold prices surged more than 2% on Monday, driven by growing market expectations of a US Federal Reserve rate cut. This uptick followed the release of soft economic data last week and the prospect of resolving the longest government shutdown in American history. As a result, spot gold rose above the $4,100 per ounce mark before stabilizing around $4,085 for a 2.1% intraday gain. Similarly, US gold futures also saw a significant rise, trading at about $4,094 per ounce in New York.
Economic Data and Rate Cut Expectations
The rally in gold prices comes in response to signs of economic slowdown in the United States, as evidenced by recent employment and consumer reports. These indicators have led to growing expectations that the Federal Reserve may cut rates next month. Investors are also anticipating that a potential end to the US government shutdown could unlock a flood of official data, providing more clarity for future economic decisions. This release would be pivotal in reinforcing expectations for a rate cut in December, as it would restore the data flow essential for policy makers.
Ole Hansen, commodities strategist at Saxo Bank, pointed out that the end of the shutdown would not only revive economic data but also refocus attention on the deteriorating US fiscal outlook. According to Hansen, rising yields driven by fiscal concerns, rather than economic strength, tend to support investment in metals like gold, which are seen as safe-haven assets during times of economic uncertainty.
Gold’s Role as a Safe-Haven Investment
Gold has traditionally been viewed as a protective asset during periods of financial instability. This year, gold prices have risen more than 50%, driven by heightened safe-haven demand and significant central bank buying. In mid-October, prices reached a record high of nearly $4,381 per ounce before retreating by around 6%. As investors seek stability amidst concerns about US fiscal policy, gold has become an attractive investment option.
Despite the potential for a Fed rate cut, Saxo Bank’s Hansen cautioned that Treasury yields have been broadly higher across the curve, reflecting concerns over the sustainability of US debt rather than expectations of tighter monetary policy. This dynamic complicates the outlook for gold, though the overall trend remains positive for the precious metal.
ScrapInsight Commentary
The rise in gold prices is directly linked to growing market concerns about US fiscal policy and expectations of a Fed rate cut. This trend signals increasing safe-haven demand, which could continue to drive prices upward, especially as uncertainty surrounding government policies persists. Gold’s role as a key investment asset remains strong amid these economic challenges.
