Precious metal nears three-week high on interest rate cut
bets Gold prices rose for the fifth consecutive session on Tuesday, reaching their highest level in nearly three weeks, supported by growing expectations that the U.S. Federal Reserve will cut interest rates in December and signs that the U.S. government shutdown is ending.
Gold prices are now trading near $4130 per ounce, up 0.4% on the day.
The rally comes as the U.S. Senate passed a deal to restore federal funding, ending the longest government shutdown in the country's history.
The fallout from the government shutdown
The U.S. Senate on Monday passed a deal that would restore federal funding and end the longest government shutdown.
Key economic indicators, such as the non-farm payrolls report, were delayed by the shutdown, and the reopening of the government in the coming days will provide more clarity on the U.S. economic outlook and the Fed's interest rate path.
The trend for the rest of the year remains bullish, at this point gold may find some resistance to last month's historic high, as the idea that the government shutdown is over has eased the level of uncertainty, so we expect the precious metal to rally back to these levels.
Economic context
Last week, data showed that the US economy lost jobs in October amid losses in the government and retail sectors.
A survey published on Friday showed that U.S. consumer confidence fell to a 3-1/2-year low in early November amid concerns about the economic fallout from the government shutdown.
Monetary Policy Outlook
Analysis of market instruments suggests that traders are factoring in a 64% probability that the Fed will cut interest rates by 25 basis points next month.
On Monday, Fed member Stephen Miran said that a 50-basis point cut would be appropriate for December, citing low inflation and high unemployment.
Future outlook
The overall trend for gold remains positive for the rest of the year, although last month's record highs may pose temporary resistance.
As the uncertainty associated with the government shutdown subsides, analysts expect gold to climb back towards new record highs, capitalizing on:
- A low interest rate environment that reinforces gold's appeal as a non-return generating asset.
- Continued economic concerns supporting demand for safe havens.
The current economic and political conditions seem to be an ideal environment for gold to continue to shine in global markets, combining its appeal as a safe haven and as a hedge against potential economic volatility.
