Gold hovers close to record highs on safe-haven flows, dovish Fed outlook

NEW YORK (October 2) Gold (XAU/USD) trades with mild positive bias on Thursday, consolidating recent gains after posting a fresh all-time high near $3,895 on Wednesday. At the time of writing, XAU/USD trades around $3,885, extending its winning streak into a sixth straight day and up roughly 3.30% so far this week as traders pause to digest the move.

The fundamental backdrop still leans supportive. The United States (US) government shutdown is stoking safe-haven interest, while growing conviction that the Federal Reserve (Fed) will cut interest rates later this month is keeping Treasury yields subdued and the US Dollar (USD) on the back foot, supporting the case for higher Gold prices.

Near term, focus remains on the US government shutdown, with disruptions already delaying key economic data releases. The weekly Initial Jobless Claims and August's Factory Orders, scheduled for this Thursday, will be delayed. The Bureau of Labor Statistics (BLS) confirmed on Monday that it will suspend operations during the shutdown, meaning Friday’s Nonfarm Payrolls (NFP) report is not likely to be released either.

Market movers: US government shutdown drags on, Fed rate cut bets soar

• The US government shutdown continues to dominate headlines, with no breakthrough in sight. On Wednesday, the Senate once again blocked a stopgap funding measure that had cleared the House, falling short of the 60 votes needed under Senate rules. The tally matched Tuesday’s outcome at 55-45, and with Senators leaving Washington until Friday, the shutdown is certain to last at least through the week and could drag on longer.
• On Wednesday, the US Supreme Court blocked President Donald Trump's bid to immediately remove Fed Governor Lisa Cook, keeping her in place at least until a full hearing in January. That outcome has eased some immediate concerns about the Fed’s independence.
• On the global trade front, Trump threatened last week to impose 100% tariffs on pharmaceutical imports beginning Wednesday. However, news late Wednesday confirmed the administration has delayed the rollout to allow more time for drugmakers to agree on price cuts and to expand manufacturing in the United States. Officials also wanted to avoid a sudden increase in healthcare costs and to reduce the risk of legal challenges.
• The latest ADP employment data came in sharply weaker than expected, showing that the US private sector shed 32,000 jobs in September, defying forecasts for a gain of about 50,000. Adding to the downbeat tone, August’s figure was sharply revised down to a loss of 3,000 jobs from an initially reported gain of 54,000.
• The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, hovers near a one-week low around 97.60, while US Treasury yields remain subdued across the board, with the 10-year near 4.09% and the 30-year around 4.70%, both close to two-week lows.
• Markets are all but convinced that the Fed will cut rates in October. According to the CME FedWatch tool, odds for a cut in October stand at 98.9%, while expectations for a December cut rose to 86.5% from 78% just a day earlier.

FXStreet