Gold Surges as US Push to End Shutdown Turns Attention to Fed

(Bloomberg) -- Gold surged as US lawmakers moved closer to ending the longest shutdown in American history, a move that would help lift the fog around the Federal Reserve’s path on interest rates.

Bullion jumped as much as 2.1% to trade around $4,080 an ounce. On Sunday, a group of Senate Democrats broke with their party on a procedural measure to help Republicans advance a funding bill. Ending the shutdown would give investors greater clarity on key official economic data such as jobs and inflation.

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Gold saw a boost late last week from signs the job market is souring and a near-record-low US consumer sentiment report. The suspension of key data releases has forced the Fed to fly blind as it tries to balance price growth and a weak labor market, with one official warning he was uneasy about cutting interest rates without official inflation figures.

Lower borrowing costs tend to benefit non-interest bearing gold. While the revived possibility of official data releases supports a December rate cut, Treasury yields were broadly higher across the curve Monday, a move that is more reflective of US debt sustainability concerns than an expectation of tighter monetary policy, according to Ole Hansen, commodities strategist at Saxo Bank A/S.

“A reopening would restore data flow and revive expectations for a December rate cut, but more importantly it shifts market focus back to the deteriorating US fiscal outlook,” Hansen wrote in a note. “Rising yields driven by fiscal anxiety, rather than economic strength, have historically been supportive for investment metals.”

It’s not yet clear how quickly the shutdown can end. The Senate will need the consent of all members for it to happen quickly. Any one senator can force days of procedural delays. Speaker Mike Johnson has also said he will give House lawmakers two days’ notice to return to Washington.

Gold has retreated around 6% since hitting a record high above $4,380 an ounce in mid-October. It’s still up more than half this year, and most of the factors that have propelled the blistering rally — heightened economic and geopolitical uncertainties and elevated central bank buying — remain in place.

The People’s Bank of China, a major buyer that’s helped abet the advance, added gold to its reserves for a 12th consecutive month in October, according to data released Friday. Gold-backed exchange-traded funds have also registered net inflows in the past two sessions.

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Spot gold rose 1.9% to $4,077.30 an ounce as of 10:50 a.m. in London. The Bloomberg Dollar Spot Index was steady. Silver jumped 3.3%, and platinum and palladium also advanced.

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