Gold Hits New Record High Again Amid Government Shutdown Fears, Weaker Dollar

The uncertainty surrounding the shutdown is creating a safe-haven demand for gold among investors.

Gold bullion bars are pictured after being inspected and polished at the ABC Refinery in Sydney, Australia, on Aug. 5, 2020. David Gray/AFP via Getty Images

Gold prices set a new record high on Sept. 30, hitting $3,871 per ounce, beating the previous high recorded a day earlier.

Spot gold prices breached the $3,800 per oz. level for the first time on Monday. On Tuesday, prices went up even higher, but fell subsequently to trade at $3,808 per oz. as of 6:40 a.m. EDT. Gold prices have risen by more than 10 percent this month.

The recent surge comes amid a weakening dollar and a potential federal government shutdown. The U.S. dollar index declined on Monday and was in the red on Tuesday as well.

Government funding is set to expire after midnight on Sept. 30. Congress must pass a stopgap bill before it expires in order to fund the government.

Failure to do so would result in the government shutting down on Oct. 1. In such a situation, all nonessential federal workers will be furloughed, and only essential tasks will be carried out.

This would have a negative impact on the American economy. A short-term funding bill was passed by the House on Sept. 19, but it has yet to be passed in the Senate.

The uncertainty surrounding the shutdown is creating a safe-haven demand for gold among investors.

In a Sept. 30 post, ING Bank said that “a failure to pass a short-term funding bill could delay the release of key economic data. This includes Friday’s job data, which is expected to show subdued employment growth.”

“Gold has increased by nearly 45 percent this year, supported by central bank purchases, the resumption of interest rate cuts, inflows into ETF holdings, and geopolitical tensions,” the ING statement said.

Earlier, in a Sept. 3 report, the World Gold Council (WGC) revealed that global gold ETFs registered their third consecutive month of inflows in August, indicating strong investor interest in the bullion.

Funds from North America added $4.1 billion last month. WGC attributed the strong demand in the region to factors such as persistent trade risks, market uncertainty, and lower rate expectations after Fed Chairman Jerome Powell’s comments at Jackson Hole last month, which the market viewed as dovish.

At Jackson Hole, Powell signaled that “adjusting our policy stance” may be warranted. The Fed had been hesitant to reduce its benchmark interest rates throughout the year until this month, when the agency announced a 25-basis-point reduction in interest rates.

The Jackson Hole speech was “arguably the most important catalyst into month-end. Outflows that had been seen in the days leading up to Jackson Hole reversed swiftly, as investors anticipated a September rate cut,” the WGC report stated.

“It is also notable that low-cost gold-backed ETFs, often viewed as a proxy for long-term strategic positioning, are having their best year on record. We consider this to be a signal that—beyond short-term market noise—investors are steadily building safe-haven allocations in response to a backdrop of elevated risks,” WGC added.

In a Sept. 19 post, wealth management company UBS said gold prices have more room to move up further.

UBS said sticky inflation and additional Fed interest rate cuts this year could result in real interest rates falling into negative territory, which would be bullish for gold.

“Gold also tends to move in the opposite direction to the US dollar, as it is priced in dollars and becomes less expensive for non-dollar holders when the greenback weakens. As the Fed catches up on policy easing to other central banks, we expect further US dollar weakness over the next 12 months, especially as concerns over the US’s fiscal position linger,” the UBS post stated.

“The expectations of lower yields and a weaker US dollar have driven robust investor demand for gold this year, and we think investment demand can pick up further, as total ETF holdings and speculators’ net positioning are still well below their previous records.”

UBS predicts global gold demand to be around 4,850 metric tons for 2025, which would be the highest level since 2011.