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Gold reaches record highs on U.S. Government shutdown and Fed rate cuts

Gold prices hit a record high on Tuesday, supported by demand for safe-haven metals as the U.S. Government shut down its operations. Growing expectations of a Federal Reserve interest rate cut in this month also added to gold's appeal.

As of 0844 GMT spot gold was up 0.9% to $3,891.96 an ounce after reaching a session high of $3.895.09 earlier.

U.S. Gold Futures for December Delivery gained 1.2% to $ 3,918.60.

Dollar-priced greenback gold is now more affordable to overseas buyers as the dollar index has fallen by 0.2%, its lowest level for over a week.

The dollar is weakening due to expectations of a Fed that has become more dovish. This dynamic has accelerated since a failed effort to pass a budget bill triggered a shutdown of the government which could have a negative impact on economic output", said Ricardo Evangelista senior analyst at ActivTrades.

Deep partisan divides between Congress and the White House prevented them from reaching an agreement on funding.

The shutdown may delay the release key economic data such as the Non-Farm Payrolls (NFP), due Friday.

Gold, which is viewed as a safe haven in times of geopolitical and economic uncertainty, flourishes in an environment with low interest rates.

Carsten Menke is an analyst with Julius Baer. He said that the Fed does not need the NFP report because U.S. rates are above neutral. If the economy is slowing down, it is important to move towards neutral.

According to the CME FedWatch Tool, investors are pricing in 95% of a rate reduction this month.

ADP's national employment report is due to be released later today and should provide additional insights into the labour market.

Silver spot gained 1.5%, reaching $47.39 an ounce, which is a record high. Palladium rose 0.5% to $1,263.44, while platinum rose 0.6% at $1,583.75. (Reporting by Ishaan Arora in Bengaluru; Editing by Ed Osmond)

(source: Reuters)