Gold nears record high as Fed dovish bets swell

Gold trades 0.35% higher to near $3,880 during the European session on Thursday, close to its all-time high of $3,895 posted on Wednesday. XAUUSD demonstrates strength as the US government shutdown has intensified speculation for more interest rate cuts by the Federal Reserve this year.

According to the CME FedWatch tool, traders seem sure that the Fed will cut interest rates by 25 basis points (bps) to 3.75-4.00% in the policy meeting later this month and see an 87% chance of lowering them again in the December meeting.

Theoretically, lower interest rates by the Fed bode well for non-yielding assets, such as the yellow metal.

On Tuesday midnight, the White House announced the partial government closure as the stopgap bill failed to get approval in Congress. According to a White House memo, the US gross domestic product (GDP) could decline by $15 bln each week on Washington’s closure.

President Donald Trump has held Democrats responsible for the shutdown and has attacked their priorities by freezing $26 bln in funding towards Democratic-leaning states, Reuters reported.

Another reason behind swelling Fed dovish bets is the weakening US job market conditions. The US ADP Employment Change report for September showed on Wednesday that the private labour force was reduced by 32,000 headcounts, which was expected to have seen a fresh addition of 50,000 workers.