Key Takeaways
- Gold prices surged over 2% on Monday, recovering from recent losses, driven by speculation of the Federal Reserve continuing its easing cycle.
- A weaker US Dollar and declining US Treasury yields are supporting the upward momentum in XAU/USD.
- Upcoming US inflation data (CPI) and the Federal Reserve’s monetary policy decision next week are key market catalysts.
- Geopolitical tensions and central bank buying remain significant long-term drivers for gold.
Gold prices saw a notable rally of over 2% on Monday, effectively clawing back losses from the prior Friday. This upward movement is largely attributed to speculation that the Federal Reserve (Fed) will maintain its easing policy cycle in the upcoming week. A softening US Dollar and falling US Treasury yields are further contributing to the bullish sentiment for XAU/USD. The precious metal is trading at $4,345 after experiencing a daily low of $4,219.
Market Movers and Fed Watch
The risk appetite in the market improved somewhat, partly due to cautious comments from US President Donald Trump regarding China. However, this was not the primary driver for gold’s uptrend, especially given a scarce economic calendar in the United States. The ongoing US government shutdown, now in its twentieth day with no immediate resolution in sight, and a blackout period for Federal Reserve officials, have left traders heavily reliant on any commentary from President Trump.
Later this week, the US Bureau of Labor Statistics (BLS) is set to release the Consumer Price Index (CPI) for September. This data will be closely scrutinized by traders and Fed officials as they prepare for the central bank’s monetary policy announcement next week.
Market participants have largely anticipated a Federal Reserve rate cut, with approximately a 96% chance priced in for a cut, and expectations of a 50 basis point reduction for the remainder of 2025.
Trade talks between Washington and Beijing are scheduled to resume in Malaysia, with the trade truce deadline of November 10th approaching. President Trump has outlined key demands for China, including halting fentanyl exports and resuming soybean purchases.
Daily Market Dynamics
- Gold prices are receiving some headwinds as the US Dollar attempts a comeback. The US Dollar Index (DXY), which measures the dollar’s strength against a basket of six major currencies, is currently down 0.06% at 98.60.
- Conversely, the yield on the US 10-year Treasury note has decreased by two basis points to 3.991%. US real yields, which typically show an inverse correlation with gold prices, are also steady at 1.723%, down nearly two basis points.
- Beyond the upcoming US CPI figures, traders will also be monitoring the S&P Global Purchasing Managers’ Indices (PMI) for October.
- Geopolitical developments continue to influence gold’s price action. Hostilities have resumed in the Gaza Strip between Israel and Hamas, following Israeli airstrikes in retaliation for alleged ceasefire violations by Hamas, potentially jeopardizing a recently signed peace deal.
- The US Senate is expected to hold another vote on reopening the US government on Monday as Senators return to Washington.
- XAU/USD has experienced significant appreciation, surging over 62% in 2025. This growth has been fueled by geopolitical tensions, substantial central bank gold acquisitions, and a global trend towards de-dollarization. Furthermore, robust inflows into Gold ETFs have boosted the price of gold from its yearly opening level of $2,623.
Technical Outlook for Gold
The bullish trend for gold remains intact, although buyers are currently hesitating to decisively break through the $4,350 level. A daily close above this resistance point could pave the way for a challenge of the all-time high at $4,379, with further potential targets at $4,400 and $4,500.
On the downside, if sellers manage to push the price below $4,200, it could open the door to further declines. The initial support level would be the daily low recorded on October 17th at $4,185, followed by the previous record high from October 8th at $4,059.
Gold FAQs
What is Gold’s Role in the Modern Economy?
Gold has historically served as a crucial store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, the precious metal is now widely recognized as a safe-haven asset, making it a potentially sound investment during periods of economic uncertainty. Gold is also viewed as a hedge against inflation and currency depreciation, as its value is not tied to any specific government or issuer.
Why Are Central Banks Buying Gold?
Central banks are among the largest holders of gold. They often diversify their reserves and purchase gold to bolster the perceived strength of their economies and currencies, especially during turbulent times. High gold reserves can serve as a confidence indicator for a nation’s solvency. According to the World Gold Council, central banks acquired 1,136 tonnes of gold, valued at approximately $70 billion, in 2022, marking the highest annual purchase on record. Emerging economies, including China, India, and Turkey, are notably increasing their gold reserves.
What is Gold’s Correlation with Other Assets?
Gold typically exhibits an inverse correlation with the US Dollar and US Treasuries, both of which are significant reserve and safe-haven assets. When the US Dollar depreciates, gold prices tend to rise, allowing investors and central banks to diversify their holdings during volatile periods. Gold also shares an inverse relationship with risk assets. A rally in the stock market often leads to a weaker gold price, while sell-offs in riskier markets tend to benefit the precious metal.
What Drives Gold Prices?
A multitude of factors can influence gold prices. Geopolitical instability or fears of a severe recession can rapidly drive up gold prices due to its safe-haven status. As an asset that does not yield interest, gold tends to perform well in low-interest-rate environments, while higher interest rates can exert downward pressure. However, the movement of the US Dollar (USD), against which gold is priced (XAU/USD), is a particularly significant driver. A strong dollar generally keeps gold prices in check, whereas a weaker dollar is likely to push gold prices higher.
Final Thoughts
The gold market is currently experiencing a bullish phase, supported by expectations of continued Fed easing and a weaker dollar. Investors are closely watching upcoming economic data and geopolitical developments for further direction.