Gold surges past $3,900 on safe-haven demand amid US shutdown and political jitters
- Gold extends record run above $3,900 as US shutdown drags on and political jitters in France-Japan boost safe-haven demand.
- Expectations of further Fed interest rate cuts continue to support Bullion, with markets pricing in two more reductions this year.
- US Dollar rebounds, as political tensions in France and Japan weigh on the Euro and Yen, tempering Gold’s gains.
Gold (XAU/USD) extends its historic run beyond $3,900 on Monday, notching one record high after another as the prolonged United States (US) government shutdown, dovish Federal Reserve (Fed) bets, and renewed political jitters in Europe keep safe-haven demand elevated.
At the time of writing, XAU/USD is trading near $3,930, up nearly 1.10% on the day, holding firm after briefly touching a fresh all-time high of $3,949 earlier in the European session and stretching its winning streak to an eighth consecutive week.
Adding to the momentum, a broadly weaker Japanese Yen (JPY), traditionally seen as a safe haven, is lending additional support to Bullion as investors react to Japan’s shifting political landscape. Overall, the broader outlook for Gold remains tilted to the upside, as persistent geopolitical tensions, steady central bank buying, and rising ETF inflows continue to lend strong support to Bullion’s remarkable rally, with prices already up about 50% so far this year.
Market movers: US shutdown and France-Japan political shifts steer markets
- The US government shutdown has entered its sixth day after weekend negotiations failed to reach a funding deal, keeping large parts of the federal government closed. The White House has warned of mass layoffs if the stalemate drags on, while the Senate struggles to muster the 60 votes required to advance competing short-term funding measures with no clear breakthrough in sight.
- French Prime Minister Sébastien Lecornu resigned on Monday, less than 24 hours after presenting his new cabinet and under four weeks into office, failing to secure parliamentary backing for his government.
- In Japan, Sanae Takaichi was elected leader of the ruling Liberal Democratic Party (LDP) on October 4, positioning her to become the country’s first female prime minister once parliament confirms her on October 15. The change in leadership was perceived as favoring a softer monetary policy stance with more fiscal spending and less urgency to raise interest rates.
- Renewed demand for the US Dollar (USD) and Treasuries emerges as political tensions in France and Japan weigh on the Euro and Yen. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, climbed to its highest level in nearly two weeks. The index is hovering around 98.35 at the time of writing, limiting Gold’s advance.
- Expectations of further interest rate cuts by the Fed are also fueling demand for non-yielding Gold. Investors are anticipating two more reductions this year. According to the CME FedWatch Tool, markets are pricing in a 95% probability of a 25-basis-point (bps) cut at this month’s FOMC meeting and an 83.7% chance of another cut in December.
- Looking ahead, the prolonged US government shutdown has delayed the release of several key economic indicators, prompting investors to rely more on private-sector data and Fed commentary for guidance. Attention now turns to the Fed’s Meeting Minutes due on Wednesday, which may offer fresh clues on the monetary policy outlook.
Technical analysis:
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XAU/USD is consolidating after reaching a fresh high near $3,949. The breakout above $3,900 keeps the bullish structure intact, with buyers defending dips despite overbought signals.
The $3,900 zone acts as the first support, reinforced by the rising 21-period SMA at $3,879, while the 50-period SMA at $3,826 sits deeper as a secondary floor. A push beyond $3,949 could set the stage for a test of the psychological $4,000 mark, while a drop below $3,900 could spark a corrective slide toward the above-mentioned moving averages
The Relative Strength Index (RSI) hovers around 69, just below overbought territory, suggesting the metal may consolidate before the next move higher.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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