Gold prices edge higher, remaining close to highs post U.S. government shutdown

Investing.com -- Gold prices hovered near record highs Thursday as haven demand remained underpinned by an ongoing U.S. government shutdown and growing conviction in more interest rate cuts. 

At 07:55 ET (11:55 GMT), Spot gold gained 0.5% to $3,885.19 an ounce, and gold futures for December rose 0.3% to $3,909.70/oz. Spot prices hit a record high of $3,895.33 on Wednesday. 

The yellow metal has hit a series of peaks this week as the U.S. government shut down after Congress failed to pass a spending bill. The shutdown will delay the release of key labor market data this week, leaving markets in the dark over the path of interest rates. 

U.S. government shutdown helps haven demand

The U.S. government is expected to remain shut for a prolonged period, disrupting several federal operations across the country, with Senate lawmakers making little progress towards reaching consensus on a spending bill.

The 19 partial or full government shutdowns over the past 50 years have gone on for an average of about eight days, according to analysts at Canaccord Genuity.

A prolonged shutdown could hurt the U.S. economy with disruptions in essential services. President Donald Trump’s threats of firing more federal workers also stand to further hurt the labor sector. 

Oxford Economics estimated that a partial government shutdown reduces economic growth by between 0.1 and 0.2 percentage points per week.

Other precious metals have put in strong performances this week. Spot platinum gained 1.7% to $1,618.35/oz, while spot silver fell 0.2% to $47.55/oz. Both metals crested over 10-year highs this week. 

Among industrial metals, benchmark copper futures on the London Metal Exchange rose 1.1% to $10,492.55 a ton, while COMEX copper futures rose 1.6% to $4.9600 a pound. 

Markets see 97% chance of October rate cut

Markets are pricing in a 97% chance for a 25 basis point cut by the Fed in late-October, and a 3% chance for a bigger, 50 bps cut, CME Fedwatch showed. 

A slew of recent readings showed the U.S. economy was steadily cooling, with particular weakness in the once strong labor market. The Fed had cut rates by 25 bps in September on concerns over cooling jobs growth.

A slew of Fed officials warned that sticky inflation could deter the central bank from cutting rates further. PCE price index data– the Fed’s preferred inflation gauge– rose as expected in August, with core inflation remaining above the central bank’s 2% annual target, data showed last week.

But private payrolls data released on Wednesday showed a further cooling in the labor market, keeping markets largely optimistic over more interest rate cuts by the Federal Reserve. This notion weighed on the dollar and benefited metal markets.

Closely-watched nonfarm payrolls data, which was initially scheduled to be released this Friday, is now expected to be delayed until at least next week.

Ambar Warrick contributed to this article