Dual drivers of risk aversion and interest rate cut expectations push gold to a new historical high

According to Zhitong Finance APP, due to the increasing uncertainty brought about by the ongoing government shutdown in the United States and rising expectations for interest rate cuts, gold prices hit a new high on Monday. Spot gold rose nearly 1% at one point, reaching a maximum of $3,920.77 per ounce, setting a new historical high. Gold futures also strengthened, peaking at $3,945.2 per ounce, marking a historical high. Data shows that gold has accumulated a nearly 50% increase so far this year.

On October 3 local time, the U.S. Senate voted on a temporary funding bill proposed by the Democrats, which ultimately failed to pass with 46 votes in favor and 52 votes against. Subsequently, the temporary funding bill proposed by the Republicans also failed to secure enough votes for approval. The U.S. federal government will continue to be "shut down."

FxPro senior market analyst Alex Kuptsikevich expects gold prices to rise for the eighth consecutive week this week. He noted, "The government shutdown has become a new driving force for the rebound in gold, as the lack of compromise between Democrats and Republicans has worsened the situation. The decline in the U.S. dollar index and Treasury yields, along with increased demand for safe-haven assets, is creating a tailwind for precious metals amid expectations of a longer and deeper decline in key interest rates."

Meanwhile, according to data from the World Gold Council, net inflows into gold ETFs surged to $13.6 billion over the past four weeks. This means that year-to-date in 2025, net inflows into such funds have exceeded $60 billion, setting a record high.

Alex Kuptsikevich added that gold-focused ETFs experienced the largest monthly inflow of funds in three years in September, "The growing investment demand, along with central banks actively purchasing gold bars, is driving the rebound in precious metals."

In addition to the safe-haven sentiment triggered by the U.S. government shutdown and unclear economic outlook, expectations for interest rate cuts by the Federal Reserve are also an important factor driving gold prices higher. Currently, according to the CME Group's "FedWatch" tool, the probability of the Federal Reserve maintaining interest rates in October is 5.4%, while the probability of a 25 basis point rate cut is 94.6%; the probability of maintaining rates in December is 0.6%, with a cumulative probability of a 25 basis point cut at 14.5% and a cumulative probability of a 50 basis point cut at 84.9%.

Federal Reserve Governor Michelle Bowman, nominated by Trump, recently reiterated the call for a more aggressive rate-cutting path, but emphasized that her differences with other decision-makers "are not as large as the outside world imagines." Bowman stated that if the policy deviates from the track, adjustments should be made "at a relatively rapid pace." She believes that the current policy is more restrictive on growth, thus requiring a looser monetary environment