Insights 
VT 
Gold prices are maintaining their ground around $4,370, nearing a fresh peak of $4,380 during the early Asian session. Ongoing discussions about a potential US government shutdown, Federal Reserve rate cuts, and renewed US credit risks are contributing factors.
The US federal government shutdown, which has reached 21 days, could enhance safe-haven demand for gold. With no resolution in sight, it ranks as the third-longest funding lapse in modern history.
Interest Rate Speculations
Traders believe there’s a 99% chance of a rate cut by the US central bank next week, with another expected in December. Lower interest rates could reduce the opportunity cost of holding gold, benefitting the metal’s price.
On the contrary, reduced trade tensions between the US and China, the globe’s two largest economies, might decrease the appeal of gold as a safe-haven asset. President Trump’s comments on a potential agreement with China eased some concerns.
Upcoming US Consumer Price Index (CPI) inflation data could impact gold prices. A hotter-than-expected CPI might lift the US Dollar, affecting the price of gold, which is denominated in USD. Central banks continue to be the largest purchasers of gold, adding 1,136 tonnes to reserves in 2022. Gold remains inversely correlated with the US Dollar and Treasuries.
Gold is holding strong near its record high around $4,370 this week. We are watching how the risk of another US government shutdown and renewed credit concerns could drive more investors toward safe havens. The market is also heavily anticipating further interest rate cuts from the Federal Reserve.
Central Bank Demand
The threat of a government shutdown reminds us of the extended funding lapse in late 2018, which boosted gold at the time. This political uncertainty adds to concerns about US credit risk, especially after Fitch’s historic downgrade back in 2023. With the national debt-to-GDP ratio remaining above 120%, investors are understandably nervous.
Expectations for a Fed rate cut are a major factor supporting the yellow metal. According to the CME FedWatch Tool, traders see a near-certainty of another rate cut next week, with more to follow. Lower interest rates reduce the opportunity cost of holding non-yielding assets like gold.
We are also seeing strong underlying support from central banks, which continue to be major buyers. This follows the record-breaking purchases we saw them make through 2022 and 2023 to diversify their reserves. This trend of de-dollarization provides a solid long-term floor for the price.
On the other hand, any signs of a breakthrough in trade discussions between the US and China could lessen the appeal of safe-haven assets. Traders should therefore keep an eye on the upcoming US Consumer Price Index (CPI) data. A surprisingly high inflation number could force the Fed to rethink its path, strengthening the dollar and creating headwinds for gold.
