Key Takeaways
- Gold prices dipped below $4,150 amid a stronger US Dollar, with traders awaiting key US inflation data.
- Geopolitical tensions and expectations of US interest rate cuts could provide support for gold prices.
- High-level US-China trade talks are scheduled, alongside the delayed release of US CPI data for September.
- Technical analysis suggests gold maintains a bullish stance above the 100-day Exponential Moving Average.
Gold Price Dynamics and Market Influences
The price of gold (XAU/USD) experienced a slight decrease, trading below $4,150 during Friday’s Asian trading hours. This dip was primarily influenced by a rebound in the US Dollar (USD), leaving traders in a state of caution following substantial sell-offs in previous sessions. Analysts suggest that the conclusion of the Diwali festival in India, a major global gold consumer, could lead to reduced physical demand, potentially exerting downward pressure on gold prices.
Conversely, persistent factors such as the ongoing US government shutdown and escalating global trade tensions may bolster safe-haven flows, providing underlying support for the precious metal. Furthermore, the anticipation of potential US interest rate cuts could contribute to an upward trend for gold. Lower interest rates typically decrease the opportunity cost associated with holding gold, thus supporting the non-yielding precious metal.
Anticipation of US Inflation Data and Trade Negotiations
All eyes are on the delayed release of the US Consumer Price Index (CPI) inflation data for September, scheduled for publication later on Friday. Economists have projected that the headline US CPI will increase by 0.4% month-over-month in September, placing the annual inflation rate at 3.1%. Excluding volatile food and energy components, core CPI is expected to show a 0.3% monthly increase, with the annual rate rising to 3.1%.
Market Movers and Key Developments
- High-level trade negotiations between the United States and China are set to commence in Malaysia on Friday. Key participants include China’s Vice-Premier He Lifeng, US Treasury Secretary Scott Bessent, and Trade Representative Jamieson Greer.
- US President Donald Trump and Chinese President Xi Jinping are scheduled to meet next Thursday on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit.
- 💡 The Trump administration is reportedly considering a plan to restrict a wide range of software-driven exports to China as a retaliatory measure against Beijing’s recent rare earth export limitations, according to a Reuters report from late Wednesday.
- 📍 The US government shutdown has now entered its 24th day, making it the second-longest federal funding lapse on record, with no immediate resolution in sight. A GOP-backed stopgap bill failed to pass the Senate for the 12th time on Wednesday, with the vote count of 54-46 largely following party lines.
- ⚡ On Wednesday, US President Donald Trump imposed sanctions on Russia for the first time during his second term, specifically targeting oil companies Lukoil and Rosneft in relation to Ukraine.
- 📊 According to a Reuters poll, the Federal Reserve (Fed) is likely to implement a 25 basis point (bps) interest rate cut next week and potentially another reduction in its December policy meeting.
- ✅ The CME FedWatch tool indicates a 97% probability of a 25 basis point rate cut.
Gold’s Technical Outlook and Strategic Levels
Currently, gold is trading with a positive bias for the day. The daily chart analysis indicates that the precious metal’s positive outlook remains intact, as the price is holding above the crucial 100-day Exponential Moving Average (EMA). This upward momentum is further supported by the 14-day Relative Strength Index (RSI), which is positioned above the midline, near the 60.0 mark.
From a bullish perspective, the initial upside resistance to monitor is at $4,218, representing the high of October 15. A sustained upward move could propel XAU/USD towards $4,330, the high recorded on October 16. Further to the north, the next significant resistance level is situated at the upper boundary of the Bollinger Band, at $4,365.
On the downside, the immediate support level for gold is identified at $4,066, which corresponds to the low registered on October 23. A series of bearish candlesticks could signal a continuation of downside pressure, potentially driving the price towards the next bearish target at the significant $4,000 psychological level. This could be followed by a further decline to the October 10 low of $3,947.
Frequently Asked Questions About Gold
What is the historical and current significance of gold?
Gold has played a pivotal role throughout human history, widely recognized as a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, gold is currently regarded as a safe-haven asset, making it a potentially sound investment during periods of economic uncertainty. It also serves as a hedge against inflation and currency depreciation due to its independence from any specific issuer or government.
Who are the primary holders of gold, and why?
Central banks are the largest holders of gold. In their efforts to support their respective currencies during turbulent times, central banks often diversify their reserves by purchasing gold to enhance the perceived strength of their economy and currency. Substantial gold reserves can foster confidence in a country’s solvency. According to data from the World Gold Council, central banks collectively added 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves in 2022, marking the highest annual purchase on record. Notably, central banks in emerging economies, such as China, India, and Turkey, are rapidly increasing their gold holdings.
What is the correlation between gold and other assets?
Gold exhibits an inverse correlation with the US Dollar and US Treasuries, both considered major reserve and safe-haven assets. When the US Dollar depreciates, gold prices tend to rise, providing investors and central banks with an avenue to diversify their assets during volatile periods. 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.
What factors influence the price of gold?
The price of gold can be influenced by a diverse range of factors. Geopolitical instability or concerns about a deep recession can rapidly drive gold prices higher due to its safe-haven status. As an asset that does not generate yield, gold tends to perform better in environments of lower interest rates, whereas higher borrowing costs usually put downward pressure on its price. However, much of gold’s movement is tied to the behavior of the US Dollar, as the asset is priced in dollars (XAU/USD). A strong dollar typically keeps gold prices in check, while a weaker dollar is more likely to push gold prices upward.