Rewrites for U.S. morning hours

By Anushree Mukherjee

Oct 7 (Reuters) - Gold extended its record-breaking rally on Tuesday, hovering just $22 shy of the $4,000 per ounce milestone, driven by expectations of a Federal Reserve rate cut later this month and persistent safe-haven demand amid the ongoing U.S. government shutdown.

Spot gold XAU= was up 0.4% to $3,978.01 per ounce by 0923 am ET (1323 GMT), after hitting an all-time high of $3,985.48 earlier in the session.

U.S. gold futures GCcv1 for December delivery rose 0.6% to $4,000.90, breaching the $4,000/oz milestone for the first time.

"It's ongoing safe-haven flows stemming in part from the government shutdown and no real indication that is likely to be resolved in the immediate term here. So there's still a pretty decent bid in gold," said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Non-yielding gold, which tends to do well during times of uncertainty and low interest-rate environments, has climbed 52% so far this year. The metal's rally has been driven by a cocktail of factors, including expectations of interest rate cuts, ongoing political and economic uncertainty, solid central bank buying, inflows into gold ETFs and a weak dollar.

The U.S. government shutdown entered its seventh day on Tuesday. The shutdown has postponed the release of key economic indicators, forcing investors to rely on secondary, non-government data to gauge the timing and extent of Fed rate cuts.

Meanwhile, political turmoil in France and Japan gripped currency and bond markets for a second day running.

Investors are now pricing in a 25-basis-point cut at the Fed meeting this month, with an additional 25-bp cut anticipated in December.FEDWATCH

Elsewhere, China's central bank added gold to its reserves in September for the 11th straight month, data from the People's Bank of China showed.

Goldman Sachs raised on Monday its December 2026 gold price forecast to $4,900 per ounce from $4,300, citing strong Western exchange-traded fund (ETF) inflows and likely central bank buying.

Elsewhere, spot silver XAG= was down 0.4% at $48.31 per ounce, platinum XPT= fell 0.1% to $1,624.63 and palladium XPD= was up 1.6% at $1,340.68.

(Reporting by Anushree Mukherjee in Bengaluru; Editing by Vijay Kishore)

((anushree.ashishMukherjee@thomsonreuters.com;))