Insights 
VT 
Gold prices are trending upwards, nearing $4,000 per ounce. The US government shutdown is cited as a factor, though not a primary driver. Political and fiscal uncertainties appear to play a larger role in Gold’s strength. Expectations for US interest rate cuts have stabilised, pointing to broader fiscal risks in countries like the US, UK, France, and Japan.
Recent political resignations in France and Japan have increased risk premiums on their government bonds. This has led to doubts about fiscal consolidation and has reduced the attractiveness of ‘typical’ safe havens. This environment has boosted Gold demand due to the scarcity of appealing alternatives. In Switzerland, the central bank’s stance against a strong franc influences market behaviour, supporting Gold prices further.
Forecasts For Gold And Silver
Commerzbank forecasts Gold to hit $4,000 per ounce this year, increasing to $4,200 next year. Silver has mirrored this trend, also experiencing gains. Forecasts for Silver stand at $49 per ounce by year-end, rising to $50 the following year. These projections reflect changing market dynamics and the evolving risks facing traditional safe havens.
With gold moving towards the $4,000 mark, the ongoing US government shutdown is a distraction from the real issue. Now in its third week, the shutdown has delayed the September jobs report, but the primary driver for gold is a broader loss of faith in government stability. We see this as a fundamental shift in safe-haven demand.
Political uncertainty is creating this lack of alternatives for capital. With recent prime minister resignations in France and Japan, and snap elections now called in France for next month, risk premiums on their government bonds are rising. The Japanese yen has also weakened past 165 to the dollar, making it an unreliable store of value for now.
Central Banks Influence On Gold
This trend is also clear in the primary markets, as US and UK fiscal risks grow. Despite the economic slowdown from the shutdown, US 10-year Treasury yields have climbed 25 basis points in the last month as the national debt surpassed $38 trillion. This indicates that investors are demanding higher returns for holding what was once considered the world’s safest asset.
Central banks are compounding this effect, with the Swiss National Bank actively working against a strengthening franc. More importantly, we see the Federal Reserve being forced to act soon, as Fed funds futures are now pricing in a 75% probability of a 50-basis-point interest rate cut by the December meeting. These expected rate cuts will further support non-yielding assets like gold.
For derivative traders, this environment suggests buying call options or establishing bull call spreads on gold futures, targeting the $4,000 strike price for late 2025 expirations. Implied volatility has been rising, but the clear upward momentum, supported by a 15% increase in COMEX open interest last month, justifies the premium. The strategy is to own upside exposure as traditional havens falter.
Silver remains a high-beta play on gold, and with its forecast raised to $49, it offers a more leveraged opportunity. Traders could consider long positions in silver futures to capitalize on its tendency to outperform gold during strong bull runs. We are seeing this pattern repeat, reminiscent of the market action in early 2024.
This environment is very similar to what we observed during the European sovereign debt crisis back in 2011. During that period, gold performed exceptionally well as investor confidence in government debt evaporated. The current flight from sovereign risk in several major economies at once suggests this trend has staying power.
