Gold draws support from safe-haven flows and Fed rate cut bets
- Gold catches fresh bids on the last day of the week amid reviving safe-haven demand.
- Bets that the Fed might cut rates again in December further benefit the yellow metal.
- A modest USD uptick might cap further gains, warranting caution for bullish traders.
Gold (XAU/USD) attracts fresh buyers following the previous day's late pullback from the vicinity of the weekly high and trades around the $4,000 psychological mark during the Asian session on Friday. Concerns about the economic fallout from a prolonged US government shutdown, along with the uncertainty over the legality of US President Donald Trump's tariffs, temper investors' appetite for riskier assets. This is evident from a weaker tone around the equity markets and drives safe-haven flows towards the precious metal.
Meanwhile, a private sector survey showed on Thursday that the US economy shed jobs in October. This, in turn, keeps the door open for more interest rate cuts by the US Federal Reserve (Fed) and turns out to be another factor acting as a tailwind for the non-yielding Gold. However, the emergence of some US Dollar (USD) dip-buying could act as a headwind for the commodity. Nevertheless, the broader fundamental backdrop favors bullish traders and backs the case for a further intraday appreciation for the XAU/USD pair.
Daily Digest Market Movers: Gold attracts some safe-haven flows amid Fed rate cut bets
- The longest-ever US government shutdown continues for the 38th day on Friday amid a congressional impasse, fueling economic concerns. In fact, the nonpartisan Congressional Budget Office estimated the government shutdown could slice between 1.0 and 2.0% off Gross Domestic Product in the fourth quarter.
- A resolution appears no closer after Democrats signaled that they were prepared to block GOP plans to force a vote on Friday after failing to pass the funding bill 14 times. Moreover, the uncertainty surrounding the legality of US President Donald Trump's sweeping tariffs supports the safe-haven Gold.
- The US Supreme Court on Wednesday grilled lawyers over tariffs imposed under a 1977 emergency powers law. Even conservative justices expressed skepticism over presidential powers in the matter. This adds a layer of uncertainty in the markets and underpins the bullion during the Asian session.
- Data from workforce analytics company Revelio Labs showed that 9,100 jobs were lost in October, and government payrolls fell by 22,200 positions. Adding to this, an estimate from the Chicago Federal Reserve suggests that the unemployment rate edged up last month, suggesting a deteriorating labor market.
- According to the CME Group's FedWatch Tool, traders are currently pricing in a 67% chance of another interest rate cut by the Fed in December, up from 60% a week ago. This led to the overnight downfall in the US Dollar and dragged it to the weekly low, which further benefits the non-yielding bullion.
- The supporting factors, to a larger extent, offset the emergence of some USD dip-buying and back the case for a further appreciating move for the XAU/USD pair. Traders now look to the release of the Preliminary University of Michigan US Consumer Sentiment Index for a short-term impetus.
Gold needs to find acceptance above $4,000 to back the case for any further appreciating move
The overnight breakout through a descending trend-line hurdle extending from last Friday and a subsequent move beyond a confluence – comprising the 100 and the 200-hour Simple Moving Averages (SMAs) – favors the XAU/USD bulls. However, neutral oscillators on the daily/4-hour charts and the commodity's inability to find acceptance above the $4,000 mark warrant some caution before positioning for further gains. Hence, any subsequent move up might continue to face some resistance near the $4,020-4,030 area, which, if cleared decisively, should pave the way for a move beyond the $4,045-4,050 resistance and allow the Gold price to reclaim the $4,100 mark.
On the flip side, the $3,975-3,965 region now seems to protect the immediate downside ahead of the weekly low, around the $3,929-3,928 zone. Some follow-through selling could make the Gold vulnerable to weaken further below the $3,900 mark and retest the October monthly swing low, around the $3,886 area. A convincing break below the latter would be seen as a fresh trigger for bearish traders and set the stage for the resumption of the recent corrective decline from the all-time peak.
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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