Key Takeaways
- Gold (XAU/USD) maintains a positive intraday stance, influenced by a weaker US Dollar but capped by the Federal Reserve’s hawkish outlook.
- Concerns over the prolonged US government shutdown are weakening the USD, providing support for safe-haven assets like gold.
- Mixed signals from US President Donald Trump’s trade discussions with China and the Fed’s monetary policy stance are creating market uncertainty.
- Traders are awaiting further clarity on the Fed’s future interest rate path from upcoming speeches by FOMC members.
- Technical analysis suggests gold needs to surpass specific resistance levels for sustained upward movement, while key support levels are identified for potential downside.
Gold Shows Resilience Amidst Mixed Economic Signals
Gold (XAU/USD) is holding onto its intraday bullish bias during the initial part of the European session, though a lack of strong buying interest persists due to mixed fundamental cues. The US Dollar (USD) is experiencing some selling pressure, retreating from a two-week high reached on Wednesday. This movement is attributed to concerns about the economic repercussions of a prolonged US government shutdown, which is acting as a supportive factor for commodities like gold. However, the US Federal Reserve’s (Fed) hawkish inclination is limiting the precious metal’s upside potential.
Fed Chair Jerome Powell has indicated a reluctance towards further interest rate cuts in December, which is helping to temper deeper losses in the US Dollar. Additionally, a sense of optimism surrounding the high-stakes meeting between US President Donald Trump and Chinese leader Xi Jinping is also contributing to capping gold’s safe-haven appeal. Consequently, it remains prudent to observe for sustained buying momentum before confirming the end of the corrective decline from its all-time peak and positioning for further gains.
Market Movers: Gold’s Positive Bias Amidst USD Weakness and Fed’s Hawkish Stance
💡 The US government shutdown, now in its fourth week due to congressional deadlock over funding, is fueling economic concerns. This situation is pulling the US Dollar away from its post-FOMC swing high and reviving demand for safe-haven gold during Thursday’s Asian session.
📍 President Donald Trump’s remarks following his meeting with China’s President Xi Jinping, stating that soybean purchases would commence immediately and rare earth issues have been resolved, along with the Federal Reserve’s hawkish stance, may deter traders from initiating fresh bullish positions in gold.
📊 The US central bank, as anticipated, implemented a 25 basis point interest rate cut on Wednesday, marking the second reduction this year. This decision saw dissents from two policymakers, including Fed Governor Stephen Miran, who advocated for a deeper cut, and Kansas City Fed President Jeffrey Schmid, who favored no cut due to inflation worries.
⚡ The US central bank also announced its intention to halt the reduction of its balance sheet size as early as December, signaling the conclusion of its quantitative tightening program. However, in the post-meeting press conference, Fed Chair Jerome Powell pushed back against market expectations for another interest rate cut in December, indicating a cautious approach.
📌 Powell acknowledged the threats perceived by committee members regarding the job market but also highlighted the risks associated with further rate adjustments without a comprehensive economic overview. This cautious stance might prevent aggressive betting against the USD and could keep a lid on significant appreciation for the non-yielding yellow metal.
📈 Traders are now looking ahead to speeches from several influential FOMC members later in the North American session for further insights into the future path of interest rates. The outlook from these speeches is expected to play a crucial role in influencing near-term USD price dynamics and providing impetus to the XAU/USD pair.
Technical Outlook for Gold
The failure to establish acceptance above the 23.6% Fibonacci retracement level of the recent corrective decline from the all-time high, followed by a subsequent dip, favors bearish traders. Furthermore, daily chart oscillators have begun to show negative momentum, suggesting that any upward movement might present a selling opportunity near the $4,000 psychological mark, which coincides with the 23.6% Fibonacci retracement level. This is closely followed by the 100-hour Simple Moving Average (SMA) in the vicinity of $4,016.
Above these levels, gold prices could potentially climb towards the $4,058-$4,060 hurdle, en route to the $4,075 region (38.2% Fibonacci level) and the $4,100 mark. On the downside, a retreat below the $3,950 area might find decent support near the $3,917-$3,916 zone, ahead of the $3,900 psychological level and the $3,886 zone, which represents a three-week low touched on Tuesday. A decisive break below this latter level could make gold prices vulnerable to a sharper decline towards the $3,850-$3,845 intermediate support, before potentially reaching the $3,800 mark and subsequent support levels near the $3,765-$3,760 zone, and the $3,700 area.
Federal Reserve FAQs
What does the Federal Reserve do, and how does it impact the US Dollar?
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
How often does the Fed hold monetary policy meetings?
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
What is Quantitative Easing (QE) and how does it impact USD?
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
What is Quantitative Tightening (QT) and how does it impact the US Dollar?
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
Expert Summary
Gold is showing resilience, trading with a bullish bias despite mixed economic signals. The weakening US Dollar, influenced by government shutdown concerns, is providing support, although the Federal Reserve’s hawkish outlook is moderating gains.
Technical indicators suggest that gold’s trading range remains crucial, with specific resistance and support levels to watch for potential price movements. Traders are closely monitoring upcoming Fed speeches for further direction on monetary policy.