Gold climbs to two-week high on rising Fed rate cut bets

Gold (GC=F)

Gold prices climbed to a two-week high on Monday, with investors betting that signs of a weakening US economy could prompt the Federal Reserve to cut rates next month, overshadowing progress towards ending the government shutdown in Washington.

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4,086.80

+77.00

+(1.92%)

As of 4:31:35 AM EST. Market Open. Advanced Chart

Gold futures rose 1.8% to $4,084.20 per ounce, while spot gold rose 2% to $4,080.07 an ounce, at the time of writing.

“Gold is catching a solid bid from traders to kick off the week, with the precious metal rising on anticipation that a rate cut could still arrive next month, even though the Fed has been downplaying the chances of it occurring,” said Tim Waterer, chief market analyst at KCM Trade.

Recent data has revealed the fragility of the US economy. Job losses in October were concentrated in the government and retail sectors, while a surge in announced layoffs reflected cost-cutting and the growing use of artificial intelligence by businesses.

Consumer sentiment weakened to its lowest level in nearly three-and-a-half years in early November, according to a survey released on Friday, amid concerns about the economic fallout from what has become the longest government shutdown on record.

Read more: FTSE 100 LIVE: Markets rebound as investors cheer potential end to US government shutdown

Investors now assign a 67% probability to a rate cut in December, according to the CME FedWatch Tool. Non-yielding gold typically benefits from lower interest rates and periods of economic uncertainty.

On Sunday, the US Senate appeared close to advancing a measure to reopen the federal government, ending a 40-day shutdown that has sidelined hundreds of thousands of workers, delayed food aid, and disrupted air travel.

“When the shutdown risk fades, investors often turn their attention back to the Federal Reserve’s policy outlook,” said Vasu Menon, an investment strategist at Oversea-Chinese Banking Corp. “If ending the shutdown means the government can release delayed economic data, it gives the Fed room to ease policy sooner if the data shows slowing growth.”

Oil (BZ=F, CL=F)

Oil prices climbed in early European trading hours, buoyed by optimism that a resolution to the prolonged US government shutdown would support demand in the world’s largest fuel consumer.

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64.25

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As of 4:30:46 AM EST. Market Open. BZ=FCL=F

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Brent crude futures gained 0.8% to $64.15 per barrel at the time of writing, as West Texas Intermediate futures rose by the same margin to $60.21 a barrel.

Sentiment was also lifted by encouraging inflation data from China, the world’s biggest oil importer.

Reports late on Sunday suggested that several Democrats had reached a deal to back a Republican spending bill to fund the government through to 30 January 30, paving the way for an end to the record-long shutdown.

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"The imminent reopening is a welcome boost, restoring pay to 800,000 federal workers and restarting vital programs that will lift consumer confidence, activity and spending," IG market analyst Tony Sycamore said.

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"This should also help improve risk sentiment across markets" and cause a rebound in WTI prices toward $62 a barrel, he said.

The shutdown has disrupted travel, particularly air transport, in several major cities, leading to concerns about a slowdown in US fuel consumption. Investors believe an end to the impasse could clear the path for stronger air travel during the winter holidays, typically a driver of oil demand.

Pound (GBPUSD=X, GBPEUR=X)

The pound edged higher against major currencies on Monday, supported by relief over a potential breakthrough in the US government shutdown and ahead of upcoming UK unemployment and GDP figures later this week.

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As of 9:41:03 AM GMT. Market Open. GBPUSD=XGBPEUR=X

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The pound was 0.1% higher against the dollar, at $1.3177, and up by the same margin versus the euro, at €1.1376.

The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, was down 0.1% at 99.50.

Prashant Newnaha, an analyst at TD Securities, said: “A possible end to the longest running US shutdown is a positive for markets.

“Our expectation is that the next step is for a House vote on Wednesday, with the government set to re-open this Friday.”

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Attention now turns to UK economic data due this week, with labour market figures for the three months to September to be released on Tuesday and preliminary third-quarter GDP on Thursday.

Economists expect the ILO unemployment rate to have risen to 4.9% from 4.8% in the previous release. Signs of further labour market weakness could reinforce expectations of a more dovish stance from the Bank of England.

In equities, the FTSE 100 (^FTSE) was higher on Monday morning, up 0.5% to trade at 9,726 points. For more details on market movements, check our live coverage here.

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