Onome Amuge
Gold rose to fresh highs on Tuesday and were on track for their strongest monthly performance in almost 16 years, as investors piled into the haven asset amid political wrangling in Washington and growing conviction that the Federal Reserve will cut rates again in October.
Spot gold was up 1 per cent to $3,870.14 per ounce, extending a 12.3 per cent advance so far this month, the biggest monthly gain since November 2009, when markets were emerging from the global financial crisis. US gold futures for December delivery climbed 1.1 per cent to $3,897.80.
The sharp rally reflects a convergence of political and macroeconomic risk factors. Investors are preparing for the possibility of a partial US government shutdown as soon as Wednesday, after talks between President Donald Trump and congressional Democrats produced little progress. A shutdown would halt a swath of federal services and delay key economic data, including Friday’s non-farm payrolls report.
“The looming government shutdown creates a haze of uncertainty over the market, which has served to accelerate gold’s gains. The $4,000 level now seems a viable year-end target for gold, whilst market dynamics such as lower interest rates and ongoing geopolitical hotspots keep working in favour of the precious metal,”said Tim Waterer, chief market analyst at KCM Trade.
Traders are now pricing in an 89 per cent chance of a quarter-point rate cut at the Fed’s October meeting, according to CME Group’s FedWatch tool. St Louis Fed president Alberto Musalem said this week that he remained open to further easing, though he stressed the need to guard against inflation.
Gold tends to benefit from falling interest rates, which reduce the opportunity cost of holding non-yielding assets. The recent climb has also been underpinned by steady inflows into exchange-traded funds. SPDR Gold Trust, the world’s largest gold-backed ETF, said its holdings rose 0.6 per cent on Monday to 1,011.73 tonnes, the highest level since mid-2022.
Market participants said investors would watch this week’s data on job openings, private payrolls and the ISM manufacturing index for further signals about the health of the US economy, assuming the statistics continue to be published.
