Key Takeaways
- Gold (XAU/USD) shows a positive trend for a second day but struggles to break above the $4,000 mark.
- Concerns over a prolonged US government shutdown are impacting economic performance and weakening the US Dollar.
- Geopolitical uncertainties and ongoing trade developments between the US and China influence gold prices.
- The Federal Reserve’s hawkish stance is limiting significant US Dollar depreciation and capping gold’s upward movement.
- Key technical levels to watch include resistance near $3,990-$3,995 and support around $3,972-$3,970.
Market Movers and Gold’s Performance
Gold (XAU/USD) maintained a positive trajectory for a second consecutive day on Tuesday. However, the momentum lacked significant follow-through, keeping the precious metal below the key psychological level of $4,000 as the European session commenced. Investors are increasingly concerned that an extended US government shutdown could negatively impact economic performance. This sentiment has helped to cap the recent rally in the US Dollar (USD) to its highest point since late May, providing tailwinds for gold prices. Furthermore, persistent geopolitical uncertainties continue to support gold as a safe-haven asset.
Meanwhile, a degree of optimism surrounding easing US-China trade tensions is contributing to a generally positive risk sentiment. This, however, is tempering the enthusiasm of gold bulls, preventing aggressive bets on the XAU/USD pair. Additionally, the US Federal Reserve’s (Fed) hawkish tilt is playing a role in limiting deeper USD losses, which in turn is helping to cap the gains in non-yielding assets like gold. Consequently, it is advisable to await confirmation of sustained buying interest before concluding that the recent corrective decline from record highs in October has concluded and that the commodity is poised for a significant upward move.
Daily Digest of Market Movers
Gold bulls appear hesitant amidst the Federal Reserve’s hawkish stance and ongoing trade optimism.
- The US government shutdown entered its sixth week, becoming the longest in history and surpassing the previous record. Economists are voicing concerns that this prolonged closure could adversely affect economic performance.
- The nonpartisan Congressional Budget Office has estimated that the government shutdown could reduce Gross Domestic Product (GDP) by 1.0% to 2.0% in the fourth quarter. This projection has capped the recent US Dollar rally, bolstering gold prices for a second consecutive day.
- Russian President Vladimir Putin has ordered preparations for nuclear testing following recent remarks by President Trump. Additionally, Russia’s intensified offensive and coordinated artillery strikes across eastern Ukraine are further benefiting bullion.
- Automatic Data Processing (ADP) reported that US private sector employment increased by 42,000 in October, exceeding estimates of 25,000 and recovering from a 29,000 decrease the previous month. Separately, the Institute for Supply Management’s (ISM) Non-Manufacturing Purchasing Managers’ Index (PMI) rose to an eight-month high.
- Following the Federal Reserve’s hawkish signals last week, traders have scaled back expectations for another 25-basis-point rate cut in December. This development could limit any substantial corrective decline in the USD, thereby capping further appreciation in gold and warranting caution for bullish positions.
- Traders are anticipating speeches from influential FOMC members during the North American session for insights into the future path of interest rates. These comments will significantly influence USD demand, which, alongside broader market sentiment, is expected to provide direction for the XAU/USD pair.
- Regarding trade relations, China announced on Wednesday that it would extend the suspension of additional tariffs on US goods for another year, formalizing an agreement reached during recent talks between Presidents Xi Jinping and Donald Trump.
Technical Outlook for Gold
Gold could experience accelerated positive momentum once the confluence hurdle at $3,990-$3,995 is cleared.
The commodity is currently positioned near the $3,990-$3,995 resistance zone. This area is a confluence of a short-term descending trendline originating from Friday and the 200-hour Simple Moving Average (SMA). A decisive breach above this barrier could trigger a short-covering rally, potentially pushing prices towards the horizontal resistance level of $4,025-$4,030. Sustained buying beyond the $4,040-$4,045 region could shift the near-term bias in favor of XAU/USD bulls, opening the possibility of reclaiming the $4,100 level, with an intermediate resistance anticipated around $4,075.
Conversely, a decline below the immediate support at $3,972-$3,970 might attract dip-buyers, potentially limiting downside pressure around the $3,940-$3,935 area. The next significant support level is identified near the $3,910-$3,900 region, followed by last week’s swing low around $3,886. A failure to hold these support levels could serve as a fresh trigger for bearish traders, potentially resuming the recent corrective decline from the all-time peak.
US-China Trade War FAQs
What does “trade war” mean?
A trade war typically refers to an economic conflict between countries characterized by protectionist measures, such as tariffs. These actions often lead to retaliatory tariffs, escalating import costs, and potentially increased living expenses for consumers.
What is the US-China trade war?
The US-China trade war began in earnest in 2018 when the US imposed tariffs on Chinese goods, citing unfair trade practices. China retaliated with its own tariffs. Tensions eased with the signing of the Phase One trade deal in January 2020, aiming for structural reforms in China’s economy. However, existing tariffs remained, and new ones were added by subsequent administrations.
Trade war 2.0
The potential return of Donald Trump to the US presidency has raised concerns about a resurgence of US-China trade tensions. During his campaign, he indicated a willingness to impose significant tariffs on Chinese goods, which could reignite tit-for-tat policies, disrupt global supply chains, reduce spending and investment, and potentially contribute to inflation.
Final Thoughts
Gold is currently navigating a complex market environment influenced by US economic concerns, geopolitical events, and central bank policies. While displaying a positive short-term bias, significant resistance and hawkish monetary policy signals pose challenges for sustained upward momentum. Traders will closely monitor upcoming economic data and central bank communications for further direction.