Gold prices rise as fiscal concerns, U.S. rate uncertainty drive demand

Investing.com -- Gold prices rose Wednesday, with this safe haven in demand following a broad selloff in global stock markets and heightened concerns over stretched fiscal spending in the developed world, especially Japan.

At 07:55 ET (12:55 GMT), Spot gold rose 1.2% to $4,116.33 an ounce and gold futures for December rose 1.2% to $4,116.64/oz. 

Gold, haven demand rises on growing fiscal concerns 

A recent spike in Japanese government bond yields, especially the longer-term notes, sparked heightened concerns over stretched fiscal spending in the country, and the Sanae Takaichi administration’s ability to fund more spending.

Markets were especially rattled by reports that Takaichi was planning to unveil a far larger spending package than initially expected, at about 25 trillion yen ($163 billion). 

As a result, 20- and 30-year Japanese bond yields were seen soaring to multi-decade highs, while the benchmark 10-year yield hit its highest level since the 2008 financial crisis. 

Japan is a major global creditor, with instability in its bond market, especially amid waning investor appetite for Japanese bonds, threatening to spill over into international markets. 

Japan was also a source of geopolitical uncertainty, as a diplomatic spat with China, over comments made by Takaichi on Taiwan, worsened this week despite Tokyo’s attempts at reconciliation. 

Gold was also aided by traders seeking shelter amid a broad sell-down in global stock markets, as investors fretted over bloated technology valuations. 

Upcoming earnings from artificial intelligence major NVIDIA Corporation (NASDAQ:NVDA) are set to offer more cues on this trade. 

U.S. Fed minutes in focus 

Some uncertainty over the Fed’s December meeting has also benefited gold, after weekly jobless claims data showed sustained weakness in the labor market. 

The labor data saw traders slightly increase their bets on a December rate cut, although markets still remained broadly geared towards a hold.

CME Fedwatch showed markets pricing in a 42.4% chance for a 25 basis point cut during the Fed’s December 10-11 meeting, down sharply from a 62.4% chance seen last week. 

Focus on Wednesday will be on the minutes of the Fed’s late-October meeting for more cues on monetary policy. Fed members almost unanimously voted in favor of a 25 bps cut, but have been growing more divided over a December cut in recent weeks.

The lack of official data, due to a prolonged U.S. government shutdown, leaves the Fed flying blind into the December meeting, making a cautious hold more likely. 

Steady U.S. rates tend to diminish the appeal of non-yielding assets such as gold. 

Gold "fundamentally supported for now" - AHG 

Gold’s rally this year looks "fundamentally supported for now," providing that current economic and policy conditions hold, according to Max Baecker, President of precious metals retailer American Hartford Gold.

"Elevated inflation, growing sovereign debt, persistent deficits, and global uncertainty all strengthen gold’s appeal as a safe-haven and an inflation hedge," Baecker told Investing.com, adding that "central bank buying and strong technical momentum" provide additional support.

Other precious metals also rose sharply on Wednesday. Spot platinum surged 2.1% to $1,588.35/oz and spot silver jumped 3.2% to $52.123/oz. 

Ambar Warrick contributed to this article