(Bloomberg) — Gold rose for a second day as a weakening US economy increased the chance of a rate cut next month, outweighing progress on ending the government shutdown in Washington.
Bullion jumped almost 2% to trade above $4,070 an ounce after finishing last week little changed. The precious metal built on gains made on Friday as a measure of US consumer sentiment fell to near the lowest on record, with the shutdown and rising prices souring. A private report the day before signaled a weak labor market.
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The record-breaking impasse in Washington, meanwhile, appears to be nearing an end after a group of moderate Senate Democrats agreed to support a deal to reopen the government, people familiar with the talks said. The suspension of data has meant the Fed has had to fly blind as it tries to balance high inflation and weak labor market.
The weak US labor market signals have reinforced expectations the Fed may trim rates next month, said Riya Singh, an analyst at Emkay Global Financial Services in Mumbai. “However, optimism surrounding a possible resolution to the prolonged US government shutdown could temper gold’s upward momentum.”
Gold has retreated around 7% since hitting a record high above $4,380 an ounce in mid-October. It’s still up more than half this year, however, and most of the factors that have propelled the blistering rally — heightened economic and geopolitical uncertainties and elevated central bank and retail 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.
Spot gold rose 1.8% to $4,071.55 an ounce as of 2:27 p.m. in Singapore. The Bloomberg Dollar Spot Index was steady. Silver jumped 2.4%, and platinum and palladium also advanced.
“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.”
