Gold prices reached an unprecedented peak on October 4, 2023, driven by a surge in safe-haven demand amid the ongoing US government shutdown. Spot gold climbed as much as 1% to hit a new record of $3,895.13 per ounce, surpassing the previous high of $3,871.45 set just a day earlier. Concurrently, US gold futures soared to $3,922.70 per ounce, marking another significant milestone.
The economic uncertainty stemming from the government shutdown—the first in seven years—has pushed investors toward gold and other safe assets such as Bitcoin. The value of the US dollar has continued to decline, which has further increased the attractiveness of bullion. According to Marex analyst Edward Meir, “The dollar has been under pressure because usually when the government shuts down, the mood turns quite negative on the US and both the dollar and US equity markets are one of the casualties.”
This year, gold has appreciated by more than 48%, placing it on track for its largest annual gain since 1979. Notably, over half of these gains occurred in the past six weeks as investors anticipate the US Federal Reserve may begin lowering interest rates. Gold typically thrives in low-interest-rate environments, as it does not yield any interest itself.
Economic Indicators Influence Market Sentiment
On the same day, the latest ADP jobs report indicated the most significant monthly decline in seasonally adjusted US private payrolls since March 2023. This sign of economic deceleration has intensified expectations of additional Federal Reserve rate cuts, with the market pricing in a 99% likelihood of a reduction occurring this month. Meir added, “The soft ADP jobs report is also not going to help the dollar. Yet another reason, slowing economy, meaning lower rates, all these things are bullish for gold.”
As investors closely monitor US economic data to gauge the Federal Reserve’s policy direction, the shutdown could postpone the release of several critical indicators, including the highly anticipated non-farm payrolls report scheduled for October 6. Despite this uncertainty, analysts believe that the conditions may favor gold investors.
Future Outlook for Gold Prices
Several major financial institutions have recently revised their outlooks for gold prices, acknowledging the various risk factors associated with the US central bank’s independence. On October 3, Macquarie became the latest bank to raise its price target for gold to $4,000 per ounce for the upcoming year.
Investment firms are observing a growing appetite among both institutional and retail investors for gold, driven by a phenomenon some analysts describe as a case of ‘FOMO’ (fear of missing out). In a note, SP Angel remarked, “Should this trend continue, we would not be surprised to see gold prices break above $4,000 per ounce.”
As the situation unfolds, the interplay between economic conditions and investor sentiment will remain crucial in shaping the future trajectory of gold prices.