Gold Hits Record High as US Shutdown and Weak Jobs Data Fuel Rate Cut Hopes

Gold prices have soared to a new all-time high, driven by the dual impact of an unexpected plunge in US private sector hiring and the unfolding US government shutdown. The combination of these events has aggressively reinforced market expectations for the Federal Reserve (Fed) to cut interest rates at its upcoming meeting.

Record Rally and Safe-Haven Flow

Bullion surged on Wednesday, briefly touching a record high of $3,895 per troy ounce before retreating slightly. The precious metal is currently trading near $3,871, still reflecting solid daily gains. The government shutdown is acting as a major risk factor, delaying the release of key economic indicators, including the critical Nonfarm Payrolls report, and increasing safe-haven demand for gold.

The favorable backdrop for gold is solidified by falling US debt yields and a softening US Dollar. The US Dollar Index (DXY) posted modest losses of over 0.11%, trading around 97.68. Meanwhile, the benchmark 10-year Treasury note yield tumbled by nearly five basis points to 4.106%. These movements lower the opportunity cost of holding non-yielding gold, propelling its rally.

Plunging Payrolls and Policy Bets

A key factor fueling the market’s conviction for a rate cut was the gloomy data from the private sector. The ADP National Employment Change report revealed that private payrolls unexpectedly shrank by 32,000 in September. This was a significant reversal from the previous month’s revised data and dramatically missed forecasts for a modest job gain.

This weak employment picture has cemented the belief that the central bank will move to ease monetary policy. Market expectations now stand at a whopping 98% chance for a 25-basis-point rate cut at the October 29 meeting.

Separately, data on the manufacturing sector from the Institute for Supply Management (ISM) showed a slight recovery, with the Manufacturing PMI rising to 49.1 in September. However, this figure remains firmly in contractionary territory (below 50), adding to the overall narrative of a slowing economy. Even a slight uptick in job openings (vacancies) could not counter the overall bearish sentiment concerning the labor market’s trajectory.