Gold prices saw a significant rally on Wednesday, climbing ₹535 to an all-time high of ₹1,17,800 per 10 grams in domestic trade, following strong global cues as investors turned to safe-haven assets amid the US government shutdown and weak labor data, which bolstered expectations of Federal Reserve rate cuts.
On the Multi Commodity Exchange (MCX), December delivery contracts gained ₹535, or 0.45%, to reach the record level of ₹1,17,800 per 10 grams. Meanwhile, the February contract advanced for the fifth consecutive session, rising ₹617, or 0.52%, to a lifetime peak of ₹1,19,055 per 10 grams.
Globally, Comex gold futures for December delivery climbed nearly 1 per cent, crossing the USD 3,900 per ounce mark for the first time and reaching a high of USD 3,903.45 per ounce.
“The US federal government began to shut down as lawmakers failed to resolve a dispute over spending. The effects of this funding lapse could be widespread, depending on how long it lasts. It could disrupt economic activity presenting risks to growth. Data releases could delay, importantly starting with the non farm payroll, NFP data (3rd Oct) for Sept. Thousands of government jobs could be axed leading to more weakness in the labor market. Government data releases are important for markets who rely heavily on these indicators to set expectations for interest rates, corporate earnings, and currency valuations. It increases the risk of mispricing and abrupt market swings with fall in the consumer confidence. Gold market awaits the rate cut expectations and in turn, the US federal reserve, relies on the economic data. Lack of these indicators blind folds the central bank in their decision making,” said NS Ramaswamy, Head of Commodities & CRM at Ventura.
How US Govt shutdown likely to impact gold prices?
Rahul Kalantri VP commodities at Mehta Equities Ltd, said that gold is often considered a safe-haven asset during political, economic, or financial stress, investors tend to shift capital into gold, which doesn’t carry credit risk in the same way that bonds or equities do (assuming monetary backing is stable). A U.S. government shutdown introduces several stress factors that tend to push demand for safe assets higher.
Kalantri further explained that if the shutdown lasts 3-7 days, then there will be major disruption and gold prices are likely to face small to moderate upside. Similarly, if the shutdown lasts for few weeks, then it might drag down the economy, hence, strong upward pressure is likely to persist on the bullion. However, if the shutdown is extended for long, then it might cause fiscal or confidence crisis, leading a strong rally or volatility in the gold prices.
NS Ramaswamy of Ventura added that the US dollar is vulnerable to changes and it strengthens the case for diversifying away from US assets into alternatives such as gold.
“Equity markets would get corrected, Treasury yields could slip, and business confidence might weaken. Geopolitical risks are multiplying, global growth is slowing, and monetary conditions remain tight. In such an environment, another source of uncertainty magnifies volatility, supporting gold. Whenever there are cracks in the system, it simply widens and its Gold as a commodity anchor protecting the whole structure. A portfolio without gold is a fortress without a keep,” he said.
On the other hand, Jigar Trivedi, Senior Research Analyst at Reliance Securities, said that traders are closely monitoring its possible duration, as an extended closure could delay key economic data, including Friday’s nonfarm payrolls report, which is crucial ahead of the Fed’s late-October policy meeting.
“Traders are now pricing in a near-certain chance of a rate reduction at the next meeting, with roughly a 76% probability of an additional cut in December. MCX Gold December is likely to advance to Rs. 118,000/10g as the trend is bullish in the international market too,” Trivedi said.
Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.