At a Glance
- The gold price (XAU/USD) is experiencing a slight increase, driven by concerns over economic and geopolitical risks, particularly the prolonged US government shutdown.
- However, gains may be capped as a strengthening US Dollar and fading expectations of further Federal Reserve rate cuts could reduce demand for the precious metal.
- Traders are anticipating key US economic data releases, including private payrolls and the ISM Services PMI, for insights into the Fed’s monetary policy stance.
- The US government shutdown is on track to become the longest in history, impacting economic sentiment.
- Gold demonstrates a positive long-term trend, maintaining its position above the 100-day Exponential Moving Average, though near-term consolidation is possible.
Gold Price Edges Higher Amidst Economic Uncertainty
The price of gold (XAU/USD) is showing a modest upward trend during early European trading hours, trading above the $3,950 mark. Heightened fears of economic risks stemming from the ongoing US government shutdown, coupled with geopolitical tensions, are fueling safe-haven demand. This influx of investor interest into assets perceived as secure is providing support for gold prices. The current US government shutdown is on pace to become the longest ever recorded this week, as negotiations between Democrats and Republicans have extended into a new month without resolution.
Despite these supportive factors, the potential for significant upside in the precious metal may be limited. Traders are booking profits after recent gains, influenced by a strengthening US Dollar (USD). This dollar strength is partly attributed to diminishing expectations of further interest rate cuts by the US Federal Reserve (Fed) this year. A stronger dollar makes gold more expensive for international buyers, which can dampen global demand and exert downward pressure on the non-yielding yellow metal.
Traders are now closely watching crucial US economic data releases for additional signals regarding the Federal Reserve’s future monetary policy decisions. Today’s focus includes the US October private payroll data. The ADP Nonfarm Employment Change report is anticipated to show an addition of 25,000 jobs, a contrast to the loss of 32,000 jobs recorded in the previous reading. Later in the day, the US Institute for Supply Management (ISM) Services Purchasing Managers’ Index (PMI) report is also scheduled for release.
Market Movers: Gold Rebounds Amid Prolonged US Federal Shutdown
The US federal government shutdown has now entered its sixth week, and it is poised to set a record for the longest shutdown in US history. Efforts to resolve the impasse have been repeatedly unsuccessful, with a Republican-backed temporary legislation failing to pass the Senate for the 14th time on Tuesday.
In trade-related developments, US President Donald Trump announced a reduction in tariffs on imports of fentanyl from China, lowering the rate from 20% to 10%. He also confirmed the continued freeze on some reciprocal levies imposed on Chinese goods, effective November 10, according to Bloomberg.
Responding to these measures, the Chinese Finance Ministry stated on Wednesday that China will lift some tariffs on US agricultural goods starting November 10.
The US central bank recently lowered its benchmark overnight borrowing rate in its October meeting, setting it within a range of 3.75%-4.0%. However, Fed Chair Jerome Powell indicated that another rate cut within the current year is not a foregone conclusion.
Ole Hansen, head of commodity strategy at Saxo Bank, commented, A hesitant Fed and the strong dollar are the culprits for the selloff in gold today.
Market participants have priced in approximately a 70% probability of a Fed rate cut in December, a decrease from 93% a week ago, according to data from the CME FedWatch tool.
China’s RatingDog Services PMI softened to 52.6 in October from 52.9 in September, aligning with market expectations. The Manufacturing PMI declined to 50.6 in October, down from 51.2 in the prior month, falling short of the estimated 50.9.
Gold Maintains Bullish Momentum Above Key EMA
The price of gold is currently trading on a positive note for the day. On the daily chart, the precious metal’s optimistic outlook remains intact, as the price is holding above the critical 100-day Exponential Moving Average (EMA). Nevertheless, some near-term consolidation cannot be entirely ruled out, given that the 14-day Relative Strength Index (RSI) is hovering around the midline, suggesting neutral momentum for the yellow metal.
On the upside, the initial resistance level to observe is the significant psychological barrier at $4,000. A sustained upward movement could propel XAU/USD back towards $4,046, the high recorded on October 31. Further north, the next resistance level is situated at $4,155, representing the high from October 23.
Conversely, on the downside, the initial support level for gold is identified at the lower band of the Bollinger Band, which currently stands at $3,835. Observing more bearish candlestick patterns could indicate a continuation of downside pressure, potentially dragging the price towards the next bearish target at $3,722, the low recorded on September 25.
Gold FAQs
Gold has historically served as a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, it is widely considered a safe-haven asset, making it a desirable investment during times of economic uncertainty. Gold is also viewed as a hedge against inflation and currency depreciation, as its value is not tied to any specific issuer or government.
Central banks are the largest holders of gold. They often diversify their reserves and purchase gold to bolster the perceived strength of their currencies and economies, especially during turbulent periods. High gold reserves can enhance a country’s solvency and foster trust. In 2022, central banks collectively added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves, marking the highest annual purchase on record. Notably, central banks from emerging economies like China, India, and Turkey have been rapidly increasing their gold reserves.
Gold 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, offering investors and central banks a means to diversify assets during uncertain times. Gold also shows an inverse correlation with risk assets; a rally in the stock market typically weakens gold prices, while sell-offs in riskier markets tend to favor the precious metal.
The price of gold is influenced by a wide array of factors. Geopolitical instability or fears of a deep recession can cause gold prices to escalate rapidly due to its safe-haven status. As an asset that does not yield interest, gold tends to perform better in environments of lower interest rates, while higher borrowing costs typically weigh on its price. However, many price movements are closely tied to the behavior of the US Dollar, as gold is priced in dollars (XAU/USD). A strong dollar generally keeps gold prices in check, whereas a weaker dollar is likely to drive gold prices higher.