Gold climbs as shutdown fuels haven demand, eyes record high
- Gold rises near $3,882, buoyed by the prolonged US government shutdown and expectations of sustained Fed easing.
- ISM Services PMI stagnates at 50 while S&P Global prints expansion, underscoring uneven economic momentum.
- Fed’s Miran stays dovish and Goolsbee stresses data dependence, while politics in Washington deepen fiscal uncertainty.
Gold price advances during the North American session on Friday, up by 0.70% for the day as the US government shutdown extends to three days, poised to end the week positively for the seventh straight week. At the time of writing, XAU/USD trades at $3,882 after hitting a daily low of $3,838.
XAU/USD extends weekly winning streak as lack of US data and Fed remarks keep traders leaning toward dovish bets
The US economic docket remains light, with the release of the Purchasing Managers Index (PMI) for September. Figures were mixed, as the Institute for Supply Management (ISM) revealed that the services survey clung to its expansion/contraction neutral level, while S&P Global showed that the economy expanded.
The data barely moved the needle, as Bullion extended its gains with traders eyeing a re-test of the record high of $3,896.
The US government shutdown impeded the release of Initial Jobless Claims on Thursday and Nonfarm Payrolls on Friday. The lack of data left traders adrift to a slew of Federal Reserve (Fed) officials crossing the wires.
Fed Governor Stephen Miran remained dovish, saying that access to data is important to set monetary policy and he remains hopeful the Fed would have access to economic releases. Nevertheless, he acknowledged that Fed policy should be forward-looking.
Chicago Fed President Austan Goolsbee acknowledged that risks to the dual mandate are balanced, adding that although the markets had priced in rate cuts, the central bank should remain data-dependent.
Regarding geopolitics, a Bloomberg article mentioned that “China is pushing the Trump administration to roll back national-security restrictions on Chinese deals in the US, dangling the prospect of a massive investment package.”
In Washington, the US Senate is expected to vote again, though there is no sign that either the Democrats' or Republicans' plan would pass.
Daily market movers: Gold boosted by mixed US PMIs prints
- Bullion price is on the defensive as the Greenback recovers, as shown by the US Dollar Index (DXY). DXY, which tracks the buck’s value against a basket of six currencies, is flat at 97.77.
- US Treasury yields retreat as the 10-year Treasury note is up three basis points at 4.11%. US real yields—calculated by subtracting inflation expectations from the nominal yield—, which correlate inversely to Gold prices, are also up two and a half bps to 1.773%.
- The ISM Services PMI missed estimates of 51.7, dipped from 52.0 to 50, an indication that the economy is slowing down. Comments of the survey showed that businesses expect “moderate or weak growth.” The employment sub-component remained subdued as companies are delaying hiring.
- Earlier, S&P Global revealed that the Services PMI expanded by 54.2, above forecasts but below August’s print of 54.5.
- US jobs data revealed during the week was mixed. The Job Opening and Labor Turnover Survey (JOLTS) for August showed vacancies rising from 7.21 million to 7.23 million, indicating that the labor market remains resilient. Contrarily, Wednesday’s ADP figures for September revealed that private companies fired 32K people, missing estimates of hiring 50K in the month.
- Money markets indicate that the Federal Reserve would cut interest rates by 25 basis points (bps) at the upcoming October 29 meeting. The odds stand at 96%, according to Prime Market Terminal interest rate probability tool.
Technical outlook: Gold price subdued around a $50 range
Gold price trend is up, but in the near-term it seems that it’s consolidating around the $3,830-$3,880 range. Momentum shows that buying pressure has stalled, as depicted by the Relative Strength Index (RSI). The index, despite being overbought, has a flat slope, an indication of buyers unable to drive prices higher.
If XAU/USD clears $3,895, immediate resistance would be $3,900, followed by $3,950 and the $4,000 mark. Conversely, a drop below $3,830 will expose the October 2 low of $3,819 ahead of the $3,800 mark. Below, the next area of interest will be the 20-day Simple Moving Average (SMA) at $3,729.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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