The price of gold rose to a new record high amid the risks of a US government shutdown
The price of gold rose to a new record high during Tuesday's trading, reaching levels of 3,870 dollars per ounce, amid the risks of a US government shutdown.
In the event of a shutdown, this will delay the release of key economic data, such as the very important jobs report scheduled for next Friday, as a possible government shutdown may push investors more towards gold, silver, and also treasury bonds.
What are the basic engines of standard ascent
- Political fears and a request for safe haven
The specter of a government shutdown in the United States is pushing investors towards traditional safe havens such as gold.
The failure of President Donald Trump and congressional leaders to make progress during their meeting on Monday reduces the prospects for reaching an agreement to fund the government.
In the event of a shutdown, this will disrupt a wide range of government services, and will also cause the postponement of the release of key economic data, increasing uncertainty and pushing investors towards gold.
- Expectations of a more flexible monetary policy
Recent US inflation data supports expectations that the Fed may continue to cut interest rates later this year.
As the markets are currently pricing in an 89% chance of a 25 basis point interest rate cut at the next meeting of the central bank.
Low interest rates reduce the opportunity cost of holding gold, which increases its attractiveness as a non-yielding asset.
- Weakening of the US dollar
The dollar index fell by 0.22% against a basket of competing currencies, which makes gold less expensive for buyers using other currencies, and boosts global demand for the precious metal.
- Another reason for the strength of the precious metal is that central banks remain active buyers, while institutional portfolios are increasingly raising their gold allocations above the traditional standard of 5%.
- Also some of the other reasons for the continuation of this strength for gold are the continued weakness of the US labor market, concerns about the impact of tariffs, and broader global growth concerns.
Gold is likely to remain solid as a hedging and diversification tool, given macroeconomic conditions such as weak US labor market indicators.
Also, silver is still rising strongly as it suffers from a persistent material deficit amid strong demand from the solar PV market as we mentioned here
Citi also raised its forecast for the three-month gold price from 3,800 dollars per ounce to 4,000 dollars, and for silver from 45 dollars to 55.00 dollars per ounce.
After such a strong rise, it is expected that a downward correction will occur as a profit-taking, but any profit-taking during the coming period is expected to be limited and absorbed by demand quickly.
