Gold prices have surged to a new record high, approaching $US4000 an ounce, driven by expectations of impending interest rate cuts in the United States and the possibility of an extended US federal government shutdown. The precious metal rallied as much as 2.2 per cent, peaking at $US3970 an ounce during the week’s opening session in New York. This surge builds on a series of seven consecutive weekly gains, resulting in a more than 50 per cent increase in gold prices this year. Furthermore, holdings in gold-backed exchange-traded funds have increased during the past week.
The US government shutdown has resulted in delays in the release of critical economic data, clouding the economic outlook. The absence of official figures has forced traders to rely on private reports for market signals. The US central bank is facing increased challenges in evaluating the evolving economic landscape because of this lack of consistent information. Current market expectations reflect anticipation of a quarter-point rate cut this month, a move that would likely further bolster gold prices as gold does not offer a yield.
Options traders remain bullish, adding positions in the SPDR Gold Shares ETF. One notable trade involved the sale of $US355 calls acquired in late September when gold prices were over 5 per cent lower. Simultaneously, the trader purchased $US370 calls equivalent to over 26 million shares, betting on a further 1.8 per cent price increase by the end of next week.
