Gold prices are on the rise, approaching $4,000 per ounce. The ongoing US government shutdown is a factor, but it’s not the main reason. Instead, political and financial uncertainties are having a bigger impact on gold’s strength. Expectations for US interest rate cuts have steadied, revealing broader fiscal risks in the US, UK, France, and Japan. In France and Japan, recent political resignations have raised risk premiums on their government bonds. This situation has caused concerns about financial stability and made typical safe-haven investments less appealing. As a result, demand for gold has increased due to the lack of attractive alternatives. In Switzerland, the central bank’s resistance to a strong franc has also helped support gold prices.

Forecasts For Gold And Silver

Commerzbank predicts that gold will reach $4,000 per ounce this year and rise to $4,200 next year. Silver is following this trend and is expected to hit $49 per ounce by the end of this year and $50 next year. These predictions highlight changing market conditions and increasing risks for traditional safe havens. As gold approaches $4,000, the US government shutdown is more of a distraction than a main issue. Now in its third week, the shutdown has postponed the September jobs report, but the true concern for gold is eroding trust in government stability. This marks a significant shift in safe-haven demand. Political uncertainty is limiting viable options for capital. The recent resignations of prime ministers in France and Japan, along with snap elections in France next month, have raised risk premiums on government bonds. Additionally, the Japanese yen has weakened beyond 165 to the dollar, making it a less reliable store of value.

Central Banks Influence On Gold

This trend is evident in the main markets, as risks in the US and UK increase. Despite the economic slowdown due to the shutdown, US 10-year Treasury yields have risen by 25 basis points in the past month, as the national debt surpasses $38 trillion. This indicates that investors want higher returns for holding what was once seen as the safest asset. Central banks are contributing to this situation. The Swiss National Bank is actively trying to prevent a stronger franc. More importantly, the Federal Reserve may have to act soon, with futures indicating a 75% chance of a 50-basis-point interest rate cut by December. These anticipated cuts will further boost non-yielding assets like gold. For derivative traders, this market suggests buying call options or setting up bull call spreads on gold futures, aiming for the $4,000 strike price by late 2025. Implied volatility is rising, but the clear upward trend, supported by a 15% increase in COMEX open interest last month, justifies the premium. The strategy is to gain upside exposure as traditional havens weaken. Silver offers a leveraged opportunity as it often jumps higher than gold during strong bull markets. With its price forecast increased to $49, traders might consider long positions in silver futures to benefit from this trend, which we have seen repeating since early 2024. This market condition is reminiscent of the European sovereign debt crisis in 2011 when gold performed well as trust in government debt faded. The current flight from sovereign risk across multiple major economies suggests this trend is likely to last. Create your live VT Markets account and start trading now.

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