Gold prices reached a historic peak on October 4, 2023, soaring due to heightened safe-haven demand triggered by a US government shutdown. Spot gold increased by as much as 1% to hit $3,895.13 per ounce, surpassing its previous record of $3,871.45 set just one day earlier. In tandem, US gold futures climbed to a new high of $3,922.70 per ounce.
The shutdown, marking the first in seven years, has created significant economic uncertainty. Investors are flocking to gold and cryptocurrencies such as Bitcoin as protective measures. According to Marex analyst Edward Meir, the weakening US dollar is a contributing factor, as economic instability typically dampens sentiment towards the dollar and US equity markets. “The dollar has been under pressure because usually when the government shuts down, the mood turns quite negative on the US,” Meir stated in a note to Reuters.
Year-to-date, gold has surged over 48%, positioning it for its largest annual increase since 1979. Notably, more than half of this gain has occurred in the past six weeks, driven by expectations that the US Federal Reserve will cut interest rates. Gold tends to perform well in low-rate environments since it does not yield interest.
Impact of Economic Data on Gold Prices
The recent release of the ADP jobs report revealed the most significant monthly decline in seasonally adjusted US private payrolls since March 2023. This downturn has intensified speculation regarding further rate cuts by the Federal Reserve, with the market now pricing in a 99% likelihood of a cut occurring within the month. Meir commented, “The soft ADP jobs report is also not going to help the dollar… lower rates, all these things are bullish for gold.”
As investors monitor US economic indicators to gauge the direction of the Federal Reserve’s policies, the government shutdown may delay the publication of critical data, including the non-farm payrolls (NFP) report due on October 6, 2023. Nonetheless, the prevailing uncertainty is expected to benefit gold investors.
Market Predictions and Future Outlook
Major financial institutions are revising their gold price forecasts in light of these developments. UBS has recently upgraded its outlook, taking into account various risk factors associated with the independence of the US central bank. Macquarie has also raised its price target for gold to $4,000 per ounce for next year.
SP Angel noted an increasing interest from both institutional and retail investors, suggesting a phenomenon of “fear of missing out” (FOMO). “Should this trend continue, we would not be surprised to see gold prices break above $4,000 per ounce,” the firm stated in a recent report.
As the situation unfolds, the interplay between economic uncertainty, Federal Reserve policy, and investor sentiment will play a crucial role in determining the future trajectory of gold prices.
