Gold soars past record $3,800 amid US government shutdown fears and Fed rate cut hopes

Weakening dollar is also supporting the bullion rally

Safe-haven bullion thrives in a low interest-rate environment and in times of geopolitical and economic uncertainty. Getty Images

Gold has resumed its ascent, marching past the all-time high of $3,800 an ounce as a potential shutdown of the US government and expectations of further interest rate cuts by the US Federal Reserve fuel the rally.

A weaker dollar also lent support to the precious metal's latest dash higher.

Spot gold gained 1.1 per cent to $3,801.88 per ounce at 8.35am UAE time on Monday. Bullion has gained more than 45 per cent since the start of this year.

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Banks including Goldman Sachs and Deutsche Bank have said they expect the rally to extend in the fourth quarter of this year.

“I continue to like gold, not only as the bulls have momentum firmly on their side, but also as the risk of un-anchoring inflation expectations, runaway government spending across developing markets, and huge physical demand from reserve allocators all continue to drive the market higher,” said Michael Brown, senior research strategist at online broker Pepperstone.

Broadening rally

The rally in gold has also now broadened to other precious metals, including silver, platinum, and palladium in recent sessions.

“The bull case for all four remains a solid one, with $4,000 per ounce in gold and $50 per ounce in silver reasonable medium-run targets in my mind,” Mr Brown said.

US President Donald Trump will meet the top Democratic and Republican leaders in Congress later on Monday to discuss extending government funding. Without a deal, a shutdown would begin from Wednesday.

Gold prices are also moving higher ahead of the release of key economic data, including Friday’s payrolls report, which economists expect would show subdued jobs growth in September.

Weaker employment figures would support the case for further rates to be made by the Fed in October. Traders are currently pricing in a 90 per cent chance of a Fed rate cut in October, with about a 65 per cent probability of another easing in December, according to the CME FedWatch Tool.

Safe-haven bullion thrives in a low interest-rate environment and in times of geopolitical and economic uncertainty. When interest rates are cut, the allure of precious metals such as gold – that do not offer interest or dividends like stocks and bonds – goes up.

“Given the risk of a US government shutdown midweek, and a distinct lack of progress being made on even a stopgap spending bill to keep things open for the time being, there seems a relatively high chance that the September jobs report isn’t released on Friday,” Mr Brown said.

“I doubt that would alter the near-term Fed outlook too much, as plenty of other private sector data is available, hence my base case remains two 25 basis point cuts, at the October and December meetings, to round off the year.”

Weaker dollar

The dollar index on Monday slipped back 0.2 per cent to 97.952. The fall makes greenback-priced gold less expensive for overseas buyers.

“Silver continues its exponential rise as well, as appetite for precious metals increases as trust and appetite for the US dollar decreases,” according to Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

“That story remains in full play – and it is not necessarily a short-term allocation. So, the rally here is expected to extend despite strongly overbought market conditions. Gold and silver traders love to trade the trend and the trend is strongly positive.”

Inflows into gold exchange-traded funds (ETFs) are also an important source of demand, Goldman Sachs wrote in a recent note. Analysts from the bank forecast spot prices to hit $4,000 an ounce by the middle of next year.

Holdings in bullion-backed ETFs are at the highest since 2022. SPDR Gold Trust, the world’s largest gold-backed ETF, said its holdings rose 0.89 per cent to 1,005.72 metric tonnes on Friday, up from 996.85 tonnes on Thursday.

Central banks have also increased their gold holdings. Large buyers last year included India, China, Turkey and Poland, according to the World Gold Council.

“Central banks, particularly in emerging markets, are steadily accumulating reserves at a 2 per cent to 3 per cent annual pace since 2022, diversifying away from fiat currencies as fiscal imbalances and the weaponisation of the dollar raise long-term concerns over the stability of global reserve structures,” said Vijay Valecha, chief investment officer of Century Financial in Dubai.

“In the first half of this year, central banks added 415 tonnes to reserves. Net purchases in the second quarter stood at 166 tonnes.”

ETFs remain about 470 tonnes below their 2020 peak, suggesting room for further inflows if past cycles are repeated, he added.

Elevated geopolitical risks, sticky inflation and continuing diversification away from the dollar mean that the case for gold, as both a hedge and a store of value, remains strong.

“In this environment, bullion’s upside bias looks intact, leaving it well-positioned to sustain record levels and potentially push higher into year-end,” Mr Valecha said.