Gold is once more in the limelight all over the world as its price reaches new records of almost $3,871 an ounce and later eases a bit in the trading on Monday. The metal, however, is still very strong in the hands of buyers who are looking for security as they prepare for the possibility of the U.S. government shutting down and the Federal Reserve cutting rates.
Government Shutdown Risks Boost Safe-Haven Appeal
If Congress members do not pass a spending project just before the September 30 deadline, the U.S. will have to face a partial government shutdown. Such a scenario could result in a delay of releases of most of the economic data, for example, jobs and inflation reports, thus, leaving markets uncertain. In the past, times of fiscal deadlock in Washington have usually led to increases in gold prices because it is considered a safe haven against volatility and dollar depreciation, the most commonly used currency for international trade.
Fed Rate Cut Expectations Add Fuel
The markets have more than just a bull run in their pockets, namely a nearly certain probability of 96.7% that the Federal Reserve will lower rates at their October meeting following this less inflation data release. In such a situation, gold becomes more attractive than bonds or savings instruments as the opportunity cost of holding non-yielding assets like gold is decreased. The traders are holding the view that the Fed may expedite its easing schedule if the economic growth were to slow down further which would be a long-term tailwind for the precious metal.
Dollar Weakness and Global Demand
The US Dollar Index has been on the losing side for the last several sessions that have resulted in higher demand for gold, the price of which is in dollars. In addition to that, central banks of developing markets are still purchasing gold for their reserves to be safe from the volatility of their currencies. Furthermore, gold exchange-traded funds (ETFs) have once again attracted money, indicating that investors are putting their trust in the metal’s long-term value.
Technical Outlook of Gold
According to the technical analysts if bulls maintain their strength, gold can have a price target of $4,365 by the end of the year. Nevertheless, it is slightly possible that the price may move down a bit or remain stable in these areas $3,450 and $3,120. Besides that, technical indexes reveal that the market is close to a stage where it is overbought, indicating that a period of stability may be experienced before another upward move.
Gold Goes Beyond Its Traditional Role
The rise in gold prices is a clear indication that there is a lot of anxiety about the fiscal health of the US government and the economic situation around the world. As a result, for instance, a portfolio of long term investors will take gold as a safety net against the future and inflation. On the contrary, to the short-term traders, around the shutdown deadline and Fed policy signals, the volatility extremes may become a source of both opportunity and risk.
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