Background on Donald Trump and the U.S. Government Shutdown
The current situation involves a partial government shutdown in the United States, initiated by President Donald Trump. The standoff stems from negotiations with Democrats in Congress to end the shutdown. A high-ranking official from the White House stated that if these negotiations “go absolutely nowhere,” mass federal worker layoffs would commence. This political uncertainty has driven investors to seek safe-haven assets, such as gold.
Gold Price Reaches Historic High Amidst Economic Uncertainty
On Monday, the spot price of gold reached a historic high, surpassing $3,900 per ounce. This surge is attributed to investors flocking to gold as a safe-haven asset amidst the ongoing U.S. government shutdown, economic uncertainty, and expectations of further interest rate cuts by the Federal Reserve.
- Spot gold increased by 1.5% to $3,942.59 per ounce at 3:10 a.m. CDMX time, peaking at $3,949.34 during early trading.
- U.S. gold futures for December delivery also rose by 1.5% to $3,967.10 per ounce.
Reasons Behind the Gold Price Surge
Lukman Otunuga, Senior Research Analyst at FXTM, explained that “the appetite for gold remains strongly stimulated by the current U.S. government shutdown.” Several factors have contributed to gold’s nearly 50% year-to-date increase:
- Strong purchases from central banks
- Growing demand for gold-backed exchange-traded funds (ETFs)
- A weakening U.S. dollar
- Increasing interest from retail investors seeking protection amidst rising trade and geopolitical tensions
This rally, characterized by low participation and primarily driven by long-term perspective holding central banks and stable investors rather than speculative buyers, suggests that any pullback might be less severe than anticipated. This ongoing momentum could present a buying opportunity during dips, according to Norman.
Economic Indicators Signal Labor Market Weakness
Alternative labor market data from public and private sources indicate signs of weakness in the U.S. job market due to the government shutdown.
Federal Reserve Interest Rate Cuts Anticipated
Investors expect a 25 basis points interest rate cut at the upcoming Federal Reserve meeting, with an additional 25 basis points cut anticipated in December. Low interest rates and economic uncertainty typically benefit gold.
Performance of Other Precious Metals
Alongside gold, other precious metals have also experienced gains:
- Silver spot price increased by 1.5% to $48.68 per ounce, reaching its highest level in over 14 years.
- Platinum gained 0.5% to $1,613.75.
- Palladium added 0.7% to $1,269.06.
Key Questions and Answers
- What is causing the surge in gold prices? The ongoing U.S. government shutdown, economic uncertainty, and expectations of further interest rate cuts by the Federal Reserve have driven investors to seek safe-haven assets like gold.
- Who is Donald Trump, and why is his situation relevant? Donald Trump is the President of the United States. His decision to initiate a partial government shutdown has created political uncertainty, prompting investors to seek safe-haven assets such as gold.
- What are the other precious metals doing? Along with gold, silver has increased by 1.5% to $48.68 per ounce, platinum has gained 0.5% to $1,613.75, and palladium has added 0.7% to $1,269.06.
