Key Takeaways
- Traders are trimming bets on a December Federal Reserve rate cut due to cautious signals from policymakers, impacting gold prices.
- Despite this, concerns over weakening economic momentum and the prolonged U.S. government shutdown may still prompt the Fed to ease policy, supporting gold.
- The U.S. Dollar remains subdued near two-week lows, offering some support to the non-yielding precious metal.
- Gold’s ability to break above $4,200 is seen as crucial for further near-term appreciation, with key resistance around $4,245.
- Immediate support for gold lies around $4,145, with further downside potential towards $4,100 and $4,075.
Gold Faces Headwinds as Fed Rate Cut Expectations Dim
Gold (XAU/USD) experienced selling pressure, retreating from intraday highs above $4,200 to a fresh daily low early in the European session. A growing number of Federal Reserve policymakers have expressed caution regarding further monetary easing, citing a lack of economic data. This sentiment has led traders to scale back expectations for an interest rate cut in December, acting as a headwind for the non-yielding yellow metal.
💡 Investors, however, remain concerned about weakening economic momentum, potentially exacerbated by the extended U.S. government shutdown. This scenario could still lead the Federal Reserve to ease monetary policy, which would typically depress the U.S. Dollar (USD) and support gold prices.
📍 The U.S. Dollar has hovered near a two-week low touched on Thursday, influenced by these expectations. A generally weaker risk tone in the market may also provide a floor for the safe-haven precious metal, suggesting caution for bearish traders.
Market Movers: Gold Reverses Amid Shifting Fed Outlook
The reopening of the U.S. government has shifted market focus back to the nation’s fiscal outlook. Market participants anticipate that delayed economic data will reveal economic weakness, bolstering the case for further policy easing by the Federal Reserve.
📊 Economists estimate that the prolonged government closure may have reduced quarterly GDP growth by approximately 1.5% to 2.0%. This comes alongside signs of deteriorating labor market conditions, which have prevented the U.S. Dollar from staging a significant recovery from its two-week trough.
📌 A senior White House official indicated that key economic reports for October, including employment and inflation data, might not be released at all. This uncertainty has prompted several Fed officials to signal caution about further easing, leading investors to reduce their bets on a December rate cut.
⚡ Minneapolis Fed President Neel Kashkari noted a mixed economic outlook, with inflation remaining elevated. Boston Fed President Susan Collins expressed hesitation regarding further policy easing, given the limited inflation data resulting from the government shutdown.
📊 According to CME Group’s FedWatch Tool, traders still price in a 50% probability of a 25 basis point interest rate reduction by the U.S. central bank in December. The probability of a rate cut in January currently exceeds 75%, which supports bullish sentiment for XAU/USD.
📍 Traders will continue to closely monitor comments from influential FOMC members for further clarity on the Fed’s rate-cut trajectory. This will influence U.S. Dollar demand and, consequently, provide impetus to gold prices, which appear poised for strong weekly gains.
Gold Seeks Acceptance Above $4,200 for Further Upside
This week’s breakout above the $4,150 horizontal barrier and subsequent move beyond the $4,200 mark has been a significant catalyst for XAU/USD bulls. Oscillators on daily and 4-hour charts are showing positive momentum, suggesting that the path of least resistance for gold prices is upward.
📍 Any further upward movement may encounter resistance near the overnight swing high, around the $4,245 region. Above this level, the commodity could target the $4,300 round figure.
On the downside, the overnight swing low around $4,145 now serves as immediate support. A break below this level could accelerate gold’s decline towards the $4,100 mark, with a potential extension towards the $4,075 zone.
⚡ Further selling could expose the intermediate support at $4,025 before the commodity test the psychological $4,000 level. A decisive breach of this level could shift the near-term bias in favor of bearish traders.
U.S. Dollar FAQs
The U.S. Dollar (USD) is the official currency of the United States and the de facto currency in numerous other countries. It is the most heavily traded currency globally, representing over 88% of all foreign exchange turnover. Following World War II, the USD replaced the British Pound as the world’s reserve currency. Historically backed by gold, this changed with the end of the Bretton Woods Agreement in 1971.
Monetary policy set by the Federal Reserve (Fed) is the most significant factor influencing the U.S. Dollar’s value. The Fed aims for price stability and maximum employment, primarily adjusting interest rates to achieve these goals. Raising rates typically strengthens the USD, while lowering rates can weigh on the dollar.
Quantitative Easing (QE) is an unconventional monetary policy where the Fed significantly increases the flow of credit, particularly during financial system crises. It involves printing more Dollars to purchase U.S. government bonds from financial institutions. QE generally leads to a weaker U.S. Dollar.
Quantitative Tightening (QT) is the reverse of QE, where the Federal Reserve ceases bond purchases and allows its bond holdings to mature without reinvestment. This process is generally viewed as positive for the U.S. Dollar.
Final Thoughts
Gold’s recent price action reflects a tug-of-war between concerns over economic slowdown and shifting expectations for Federal Reserve policy. While Fed policymakers’ cautious stance has tempered rate cut bets, the lingering impact of the government shutdown and potential for easing continue to influence market sentiment.
📊 Traders will be keenly watching upcoming economic data and Fed communications for further direction. Gold’s ability to hold key support levels versus its ability to break through significant resistance will be critical in determining its short-to-medium term trajectory.
