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Gold and silver prices reach record levels; stock market boosted by rate outlook

Investors jumped on Wednesday as they seized on the prospect of lower rates and shrugged off the political drama in France, Japan, and the United States. Meanwhile, a prolonged U.S. shutdown pushed gold to $4,000 an ounce for first time. Gold prices have risen 50% in the past year due to the prospect of Federal Reserve rate cuts and the demand for safe-haven assets resulting from political and economic concerns. Gold is traditionally seen as a safe haven during periods of economic and political instability. The weaker dollar has also been a factor in this rally. It was driven by central banks, retail traders, and fund managers.

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It's obvious that it benefits from the uncertainty surrounding stock valuation. It benefits from the uncertainty in the bond markets. "The weakness of the dollar also benefits gold," said Chris Iggo. Chief Investment Officer for Core Investments at AXA Investment Managers.

He said that gold is a good hedge against other markets.

European stocks gained 0.6% as gains in bank shares offset a decline in autos. BMW shares fell 7% after the German luxury automobile maker cut its earnings forecast for 2025. U.S. futures are up 0.2% and suggest that New York will see more gains later. Sebastien Lecornu, the caretaker prime minister in France, said that a budget agreement could be reached by the end of the year, reducing the likelihood of an early election. Sebastien Lecornu's cautious optimism helped to boost French bonds. OAT yields fell 5.3 basis points for the day, at 3.52%. However, it did not help the euro. It was headed for a third consecutive daily loss, trading at around $1.1629, a one-month low. Nina Stanojevic said that the volatility has been high because it's a new prime minister. It raises two areas for uncertainty. First, the fiscal packages that are being pushed and whether there will be another snap election in the near future. This would impact French OATs. The yen has also been pushed lower by political shifts in Japan this week. Investors are waiting for the announcement of Sanae Takaichi, who is expected to become prime minister in the near future. Last time, it was 152.40 to the dollar. Takaichi’s weekend victory has raised concerns among investors regarding the Bank of Japan’s ability to increase interest rates in the same way as expected. This has, of course, affected the yen. The yen has dropped over 3% in the past week and is on track to have its biggest weekly drop in a full year. This has sparked fears of Japanese government intervention. Hirofumi Suzuki, chief currency analyst at SMBC said that if the yen headed towards 160 in one to two weeks "FX interventions by the Japanese government will be viewed more likely". New Zealand's dollar fell by nearly 1% as the central bank cut its benchmark rate 50 basis points. The policymakers also left the door open to further easing. This suggests that they were concerned about the fragile state of the economy. The dollar index (which measures the U.S. currencies against six other currencies) hit its highest level since the end August. However, sentiment was still gloomy as the shutdown entered its eight day. The shutdown has also prevented the release of several key economic reports. The Federal Reserve is still expected to reduce rates by 45 basis points between now and year's end, according to the markets. Investors dismissed concerns about excess supply in this year, and oil prices rose on Wednesday. Brent crude futures increased 1% to $66.07 per barrel. (Joice Alves, London; Ankur Banerjee, Singapore; Sam Holmes and Sharon Singleton edited the story.)

(source: Reuters)