Gold, silver futures soar up to 1.7% to record highs as US shutdown, Fed rate cut bets boost safe haven demand

Gold futures on Monday, October 6, soared 1.6% (₹1,962) to a lifetime high of ₹1,20,075 per 10 gram on the Multi Commodity Exchange (MCX) after closing at ₹1,18,113 per 10 gram on Friday.

The contracts for the December delivery surged in domestic futures trade on the back of increased safe-haven buying amid the prolonged US government shutdown and growing expectations of US Federal Reserve rate cuts.

At around 2:50 pm, gold December futures were trading 1.52% up at ₹1,19,905 per 10 gram on the MCX with an open interest of 15,703 lots.

The February contracts extended their gains for the seventh consecutive session, climbing to ₹1,21,365 per 10 gram on Monday, rising by 1.7% (₹2,032) from Friday’s closing price of ₹1,19,333 per 10 gram.

Silver futures for the December expiry also touched a fresh peak, jumping 1.5% (₹2,233) to ₹1,47,977 per kg on the MCX.

The white metal futures for December delivery were trading 1.4% up at ₹1,47,791 per 10 gram on the MCX on Monday, at around 2:50 pm, with an open interest of 19,582 lots.

Safe haven demand for precious metals

As per market analysts, the budget impasse in Washington, which has stalled key federal programmes and delayed the release of critical economic data, has fuelled risk aversion and pushed investors towards precious metals.

Gold is a safe-haven asset, which means that investors turn to the yellow metal when other investments turn risky. The precious metal thrives particularly in geopolitical turmoil, market fluctuations and weakening currencies.

Globally, Comex gold futures for December delivery climbed 1.2% to a record high of $3,957.90 per ounce. Silver futures also jumped 1% to their highest level since April 2011, reaching $48.47 per ounce.

"Silver climbed above $48.3 per ounce as the ongoing US government shutdown and expectations of further Federal Reserve rate cuts boosted demand for safe-haven assets. Lawmakers once again failed to secure a funding deal, delaying key major data releases, including September's jobs report," a PTI report quoted Jigar Trivedi, Senior Research Analyst at Reliance Securities, as saying.

He added that investors are now almost fully pricing in a quarter-point Fed rate cut this month and another in December. Market participants will closely track Fed Governor Stephen Miran’s remarks on Wednesday and the release of Federal Open Market Committee (FOMC) minutes, as well as Chair Jerome Powell's speech on Thursday, for further insights into the policy and trajectory for precious metals.

"Beyond macro factors, silver drew support from tightening supply conditions, with the Silver Institute projecting a global market deficit for a fifth consecutive year in 2025," Trivedi said.

A report by Tata Mutual Fund last week noted that silver has risen by nearly 61% this year amid strong investment demand and supply deficit. The white metal could outperform gold in the medium term with a favourable gold/silver ratio, recovery in developed economies and increased industrial demand, aided by global supply deficit projections, it said.

There has been a consistent supply deficit for Silver for five years straight, which, combined with its rising industrial demand, has acted as a major boost for overall market sentiment.