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At a Glance
- Gold prices experienced a recent dip below $4,100 in early Asian trading, influenced by easing US-China tensions and profit-taking ahead of US inflation data.
- Potential catalysts for a gold price increase include the ongoing US government shutdown and geopolitical uncertainties, which bolster its safe-haven appeal.
- Speculation about further Federal Reserve interest rate cuts could also support gold by reducing the opportunity cost of holding the non-yielding metal.
- Traders are closely watching US-China trade talks, with key meetings scheduled this week and next, impacting market sentiment and gold prices.
- US CPI inflation data is highly anticipated on Friday, with a hotter-than-expected result potentially strengthening the US Dollar and pressuring gold prices.
Market Dynamics Influencing Gold Prices
The gold price (XAU/USD) saw a decline, trading below $4,100 during early Asian trading hours on Thursday. This sell-off followed a sharp correction in previous sessions, driven by the easing of tensions between the United States and China. Traders also engaged in profit-taking activities in anticipation of crucial US inflation data scheduled for release on Friday. Analysts suggest that the conclusion of the Diwali festival in India, a significant gold consumer, might lead to reduced physical demand, further contributing to a downward pressure on prices.
Conversely, several factors could potentially boost the price of gold. The ongoing US government shutdown and persistent geopolitical tensions position gold as a favored safe-haven asset during times of economic and political uncertainty. Furthermore, speculation regarding further interest rate cuts by the Federal Reserve (Fed) is seen as a supportive element for the yellow metal. Lower interest rates decrease the opportunity cost associated with holding gold, providing a tailwind for the non-yielding precious metal.
Market participants are closely monitoring developments surrounding the US-China trade negotiations. Representatives from both nations are scheduled to meet later this week, preceding a planned summit between Chinese leader Xi Jinping and US President Donald Trump the following week. These trade discussions are critical for shaping global economic outlooks and influencing commodity prices.
The release of the US Consumer Price Index (CPI) inflation data for September is expected to be a focal point later on Friday. This report is particularly significant due to the data drought caused by the government shutdown. If the inflation figures come in hotter than anticipated, it could lead to a strengthening of the US Dollar (USD) and, consequently, exert downward pressure on gold prices, which are denominated in USD.
Gold’s Performance and Analyst Insights
Gold experienced historic gains in 2025, with a rise exceeding 50%, outperforming previous volatile periods such as those following the September 11 attacks, the 2008 financial crisis, or the COVID-19 pandemic.
The US government shutdown has entered its fourth week with no immediate resolution in sight. The Senate is expected to hold another vote on a funding bill, though its passage is considered unlikely. This situation marks the second-longest government shutdown in US history, contributing to market uncertainty.
US President Donald Trump indicated late Wednesday that a lengthy meeting with China’s Xi Jinping is scheduled in South Korea, expressing optimism that a resolution may be found.
“The sell-off appears to be largely technical, with profit-taking following an extended period of overbought conditions since September. Despite the pullback, bullion remains up roughly 55% this year, and the longer-term primary uptrend remains firmly intact,” stated Russell Shor, senior market analyst at tradu.com.
According to LSEG data, Fed funds futures currently imply a 97% probability of a 25 basis point rate reduction by the Federal Reserve.
Technical Outlook for Gold
The gold price is currently trading in negative territory for the day. Analysis of the daily chart indicates a constructive outlook for the precious metal, supported by its position well above the pivotal 100-day Exponential Moving Average (EMA). This upward momentum is further reinforced by the 14-day Relative Strength Index (RSI), which remains above the midline, hovering near 57.25.
The immediate resistance level to monitor is $4,140, which represents the high recorded on October 15. A successful breach above this level could attract fresh bullish momentum, potentially driving gold prices towards $4,330, the high of October 16. The next significant hurdle is anticipated at the upper boundary of the Bollinger Band, situated at $4,365.
On the downside, the critical support level for XAU/USD is the significant psychological level of $4,000. A pattern of more bearish candles and sustained trading below the October 10 low of $3,947 could pave the way for a further downside move, potentially targeting $3,838, the low recorded on October 3.
Frequently Asked Questions about Gold
What is the role of gold in history and currently?
Gold has played a significant role throughout human history, serving as a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, gold is widely recognized as a safe-haven asset, making it a potentially sound investment during turbulent economic times. It is also considered a hedge against inflation and currency depreciation, as its value is not tied to any specific issuer or government.
Who are the largest holders of gold, and why?
Central banks are the primary holders of gold reserves. They acquire gold to diversify their reserves and bolster the perceived strength of their economies and currencies, especially during times of global uncertainty. High gold reserves can enhance a country’s solvency and credibility. In 2022, central banks collectively added approximately 1,136 tonnes of gold, valued around $70 billion, to their reserves, marking the highest yearly purchase on record. Emerging economies, including China, India, and Turkey, are particularly active in increasing their gold holdings.
What is the correlation between gold and other assets?
Gold typically exhibits an inverse correlation with the US Dollar and US Treasuries, both of which are considered major reserve and safe-haven assets. When the US Dollar depreciates, gold prices tend to rise, allowing investors and central banks to diversify their portfolios during uncertain periods. Gold also tends to be inversely correlated with risk assets. A strong performance in the stock market often weakens gold prices, while significant sell-offs in riskier markets typically favor the precious metal.
What factors influence the price of gold?
The price of gold can be influenced by a wide array of factors. Geopolitical instability or concerns about a potential recession can rapidly increase gold prices 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, whereas higher borrowing costs can put downward pressure on its price. However, the movement of the US Dollar (USD) remains a primary driver, as gold is priced in dollars (XAU/USD). A strong US Dollar generally keeps gold prices in check, while a weaker Dollar is likely to push gold prices higher.
Final Thoughts
Gold prices are currently navigating a complex landscape, balancing factors ranging from geopolitical tensions and central bank policies to trade negotiations and inflation data. While short-term technical selling and profit-taking have influenced recent price action, the long-term bullish trend for gold remains intact, supported by its enduring safe-haven appeal.
Investors and traders will be closely watching key economic indicators, particularly US inflation data, and developments in international trade relations for further directional cues. The Federal Reserve’s monetary policy stance will also continue to play a crucial role in determining the opportunity cost of holding gold.
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