Gold (XAU/USD) hit a new record high on Thursday, surpassing all-time highs, as safe-haven demand continues amid heightened geopolitical and economic uncertainty. At the time of writing, XAU/USD is trading around $4,270, up nearly 10% so far this month and more than 60% since the beginning of the year.

The trade standoff between the United States and China remains at the forefront of investor attention after it flared up again late last week when US President Donald Trump shook markets by announcing plans to impose 100% tariffs on all Chinese imports starting November 1. This move came in response to Beijing's decision to tighten export controls on rare earth elements, raising fears of a full-blown trade war and its potential impact on global growth.

Meanwhile, the US government shutdown, now in its third week, continues to weigh on market sentiment, with uncertainty persisting over when federal operations will resume. The overall weakness of the US dollar and the decline in Treasury yields are enhancing the appeal of the yellow metal, as markets increasingly anticipate a dovish stance from the Federal Reserve in the coming months.

 

Market Drivers: Trade War, Fed Cuts Bets, Shutdown Troubles Keep Markets Nervous

• US President Donald Trump told reporters Wednesday evening that the dispute with China has escalated into a "full-blown trade war." Asked whether this could escalate into a prolonged conflict if talks with President Xi Jinping later this month fail, Trump replied, "We're in a fight now." The president defended his recent threat to impose 100% tariffs, saying, "If we didn't have tariffs, we'd be worthless."
• Some positive signals came from US Treasury Secretary Scott Besant on Wednesday, raising hopes that 100% tariffs on Chinese imports could be avoided. Besant confirmed that President Donald Trump is willing to meet with Chinese President Xi Jinping in South Korea later this month and added that the United States may consider extending the current trade truce if Beijing rolls back its planned export controls on rare earth elements.
• The U.S. Senate failed for the ninth time to pass a Republican-backed funding bill on Wednesday. The White House warned that total layoffs could exceed 10,000 federal employees if the shutdown continues, while Treasury officials estimate that the government shutdown is already costing the U.S. economy $15 billion per week.
• Federal Reserve Governor Christopher Waller said Thursday that "cutting interest rates again is the right thing to do," noting that little has changed in the past six weeks and that the neutral rate is likely to be about 100-125 basis points below the current federal funds rate.
• On the monetary policy front, markets remain convinced that the Fed will make additional rate cuts before the end of the year. According to the CME FedWatch tool, traders are pricing in a 96.7% probability of another 25 basis point rate cut at the October 29-30 meeting, followed by a 93.7% probability of a similar cut in December. This growing conviction in successive rate cuts reflects expectations that the Federal Reserve will prioritize supporting the slowing labor market, even as inflation remains above its 2% target.
• Major banks' confidence in gold has increased. Bank of America now expects the price to reach $5,000 per ounce by 2026, while Goldman Sachs is targeting $4,900 by the end of 2026. ANZ has raised its forecast to $4,400 by the end of 2025, with a potential peak near $4,600 by June 2026.