Gold prices rose in Asian trading on Wednesday as concerns grew about excessive fiscal spending in the developed world, particularly Japan, leading to increased demand for safe havens.
Gold and other safe havens also benefited from uncertainty over a December interest rate cut by the US Federal Reserve, amid some signs of weakness in the labor market and ahead of the release of the Fed's October meeting minutes.
The dollar stabilized after recent gains, helping to provide some support in the metals markets. Gold also received a boost from traders seeking a safe haven amid a broad sell-off in global stock markets, as investors worried about inflated valuations of technology companies.
The earnings results from leading artificial intelligence firm Nvidia Group (NASDAQ:NVDA) are expected to provide further clues about this trade.
Spot gold rose 0.6% to $4,092.51 an ounce, while December gold futures rose 0.7% to $4,093.79 an ounce by 8:54 a.m. Saudi time.
Gold rises and demand for safe havens increases amid rising financial concerns.
The recent increase in yields on Japanese government bonds, particularly long-term bonds, has raised growing concerns about the country's excessive fiscal spending and the ability of Sanae Takaichi's administration to finance further spending.
Markets were particularly unsettled by reports that Takaichi plans to unveil a much larger spending package than initially expected, around 25 trillion yen ($163 billion).
Yields on Japanese 20- and 30-year bonds were seen rising to their highest levels in decades, while the benchmark 10-year yield reached its highest level since the 2008 financial crisis.
Japan is a major global creditor, and instability in its bond market, particularly with declining investor appetite for Japanese bonds, threatens to spread to international markets.
Japan has also been a source of geopolitical uncertainty, as a diplomatic row with China has worsened this week over comments made by Takaichi about Taiwan, despite Tokyo's attempts at reconciliation.
Other precious metals also rose sharply on Wednesday. Spot platinum jumped 0.9% to $1,547.96 an ounce, while spot silver climbed 1.3% to $51.3825 an ounce.
Bets on US interest rate cuts and the Fed minutes in the spotlight
Gold also benefited from some uncertainty surrounding the Federal Reserve meeting in December, after weekly jobless claims data showed continued weakness in the labor market.
The jobs data led to a slight increase in traders' bets on an interest rate cut in December, although markets remained generally bearish. CME FedWatch showed markets pricing in a 42.4% probability of a 25-basis-point cut at the Fed's December 10-11 meeting, a sharp drop from the 62.4% probability seen last week.
Attention on Wednesday will focus on the minutes from the Federal Reserve's late October meeting for further clues about monetary policy. Fed members voted almost unanimously in favor of a 25-basis-point cut, but have been noted to have become more divided over a December cut in recent weeks.
The lack of official data, due to the prolonged US government shutdown, leaves the Fed flying blind at its December meeting, making a cautious hold on rates more likely.
Stable US interest rates tend to reduce the appeal of non-yielding assets such as gold.
