Gold prices rise as the dollar slips and the U.S. government shuts down
Gold prices rose above $4,000 an ounce on Thursday, defying strong U.S. economic data, as the dollar retreated from its recent peak and the longest government shutdown in U.S. history continued, fueling uncertainty among investors.
Favorable winds: Dollar slips, gold rallies
The yellow metal kicked off with a strong bullish momentum during Asian trading, mainly benefiting from the US currency's retreat from a 4-month high. A weaker dollar makes gold less expensive to buy for investors dealing in other currencies, opening the door for further gains.
Dollar slips despite strong jobs release
The latest data contradicted gold's performance. The ADP US private sector employment report, released on Wednesday, showed a stronger-than-expected performance, with employers adding 42,000 new jobs in October, beating analysts' expectations of 28,000.
A stronger labor market usually means a tighter grip on the Federal Reserve, limiting hopes of a rate cut soon.
This was reflected in market expectations, with the probability of a December rate cut falling to 63%, down from over 90% last week.
The government shutdown is overshadowing all indicators
However, another factor has entered the equation, explaining gold's current rally. Continued gridlock in the US Congress has led to what is now the longest government shutdown in the country's history.
The long shutdown has forced investors and central bankers to rely almost entirely on private sector indicators to assess the health of the economy, in the absence of official data.
This situation of political instability and economic uncertainty has prompted investors to take shelter in gold, the traditional safe haven in times of crisis and uncertainty, overlooking the strength of employment indicators.
Gold, as a non-cyclical asset, tends to perform well in low interest rate environments, as the opportunity cost of owning it is low.
It is worth noting that the expected targets for gold during the coming period may extend to levels of $4100 and then $4200 per ounce.
