Gold nears $4,000 an ounce for first time ever: What's driving the rally?

Gold prices clinched a new record on Tuesday as they pushed closer to $4,000 an ounce mark, mainly due to the US government shutdown and the political crisis in France, injecting more financial uncertainty into the markets.

 

According to the goldprice website, the current gold price, at the time of publishing this report, was recorded at $3965.63

How the US government shutdown has impacted gold prices

 

The US government shutdown occurs when Congress fails to pass the funding legislation required to keep the federal government running. The latest shutdown follows the Republican-controlled Senate’s failure to pass key funding bills on September 30.

 

Bullion climbed to $3,977.44 an ounce after surging 1.9 per cent on Monday (local time). According to Bloomberg, the ongoing suspension of federal operations, now in its second week, has left investors without crucial economic data needed to assess the state of the US economy. The lack of information has also complicated the US Federal Reserve’s efforts to evaluate evolving conditions. Meanwhile, traders continue to anticipate a quarter-point rate cut this month, a move that could support gold prices since the metal does not yield interest.  The shutdown, which is now in its sixth day, means that some US government services are temporarily suspended and nearly 40 per cent of the federal workforce, about 750,000 people, are expected to be put on unpaid leave.

 

According to Bloomberg, US President Donald Trump’s aggressive efforts to reshape global trade and geopolitics have fuelled a roughly 50 per cent surge in gold prices this year. His policies have prompted investors to seek safe-haven assets and reduce exposure to the dollar. Central banks and gold-backed exchange-traded funds have stepped up purchases, while the Federal Reserve’s recent interest rate cut and expectations of further easing have added further support to the rally.

Political instability in France

 

On Monday, French Prime Minister Sebastien Lecornu resigned, hours after unveiling his new cabinet. Lecornu had been in office for less than a month after Francois Bayrou’s government collapsed.

 

His resignation was also due to the unsuccessful attempts to reach a consensus on budget spending with political parties. The political deadlock has hampered efforts to contain the euro area’s largest fiscal deficit.

Sanae Takaichi to be Japan's Prime Minister?

 

Sanae Takaichi’s likely appointment as the Japanese prime minister has also jolted the financial markets. Takaichi won the election recently and is all set to become the first female prime minister of the country, nearly a month after Shigeru Ishiba stepped down from his post after being defeated in the July Parliamentary elections.

What do experts say on gold rally?

 

According to  Rahul Kalantri, vice-president commodities, Mehta Equities Ltd, the gold prices surged to lifetime highs, moving closer to the $4,000 per troy ounce mark as investors sought safety amid global political and economic instability. The prolonged US government shutdown, mass layoff threats, and lack of key economic data have clouded the outlook for the Federal Reserve, with markets expecting two rate cuts by year-end. Additional political turbulence in France and Japan has further lifted demand for gold. Strong investment demand from ETFs continues to underpin the rally, with gold ETF holdings rising 17 per cent, he said.

 

Nicky Shiels, head of research and metals strategy at MKS PAMP SA, told Bloomberg that the political shakeups in France and Japan are adding to the fiscal worries and contributing to gold's rally, adding that a mix of retail (especially in Europe and Japan) and institutional inflows is the reason behind the latest surge in gold prices.

Gold prices in India today

At the time of publishing this report, the gold prices in India, according to the goodreturns website were as follows: 

Cities	24-karat gold	22-karat gold
Delhi	₹1,22,070	₹1,12,200
Mumbai	₹1,22,020	₹1,11,850
Chennai	₹1,22,180	₹1,12,000