Gold Price Shatters Record, Soaring Past $3,800 on US Shutdown Fears
The price surged past $3,800 an ounce, driven by safe-haven demand ahead of Tuesday's budget deadline and aggressive Fed rate cut speculation
- Gold's price reached a new record high, with spot gold surging past $3,812 per ounce.
- The primary driver for the price surge is investor anxiety over a potential US government shutdown due to a political deadlock in Congress over a spending bill.
- The rally was also supported by a weakening US Dollar and expectations that the Federal Reserve will implement further interest rate cuts, increasing gold's appeal as a safe-haven asset.
The global gold price hit a new record high on Monday, smashing through the $3,800-per-ounce barrier as political turmoil in Washington drove investors towards the safe-haven metal.
The precious commodity was buoyed by intense market anxiety over a looming US government shutdown this week, compounded by firm speculation that the Federal Reserve (Fed) is committed to further aggressive interest rate cuts.
During Monday's trading session in Asia, Spot gold surged to a new all-time peak of $3,812.0 per ounce. Meanwhile, US gold futures contracts for December delivery also climbed to a high of $3,839.05 per ounce.
The sharp rise in gold is directly linked to the risk that the administration of President Donald Trump could face a fiscal shutdown after midnight on Tuesday, 30 September, US time. This risk is activated if Congress fails to agree on a new federal spending bill.
The potential for a shutdown, which would furlough government employees, intensified after the House of Representatives narrowly passed a short-term spending measure only to see it blocked by Democrats in the Senate, who are demanding cross-party negotiations on healthcare budgets.
President Trump is scheduled to meet with Congressional leaders on Monday in a last-ditch attempt to avert the crisis before the Senate convenes on Tuesday.
This would be the fourth fiscal paralysis under the Trump administration, following a lengthy 35-day shutdown in 2019 that the Congressional Budget Office estimated cost the US economy around $3 billion.
The record gold rally was also strongly supported by a weakening US Dollar.
The US Dollar Index dropped 0.2 per cent against a basket of major currencies, driven by expectations that the Fed will enact further rate reductions during its two remaining policy meetings this year.
This sentiment was reinforced by Friday's data from the US Department of Commerce, which showed that the Personal Consumption Expenditures (PCE) price index—a key inflation measure for the Fed—increased by 0.3 per cent in August, meeting economists' consensus forecasts.
Kyle Rodda, an analyst at Capital.com, commented that the inflation figures "solidified market belief that the Fed will cut interest rates again in October and December."
"Sentiment is overwhelmingly positive, and we are tracking to test the all-time high again this week," Rodda added.
Data from the CME FedWatch Tool highlights the strength of these bets, assigning a 90 per cent probability of a Fed rate cut in October and approximately a 65 per cent probability of an additional cut in December.
