Gold hovers close to record highs on safe-haven flows, dovish Fed outlook
- Gold trades with a firm tone, hovering below the all-time high of $3,895.
- The bright metal benefits from safe-haven demand as the US shutdown delays key economic data releases.
- Technically, XAU/USD continues to find strong demand ahead of the $3,850 zone, with dip-buying keeping the tone constructive.
Gold (XAU/USD) trades with mild positive bias on Thursday, consolidating recent gains after posting a fresh all-time high near $3,895 on Wednesday. At the time of writing, XAU/USD trades around $3,885, extending its winning streak into a sixth straight day and up roughly 3.30% so far this week as traders pause to digest the move.
The fundamental backdrop still leans supportive. The United States (US) government shutdown is stoking safe-haven interest, while growing conviction that the Federal Reserve (Fed) will cut interest rates later this month is keeping Treasury yields subdued and the US Dollar (USD) on the back foot, supporting the case for higher Gold prices.
Near term, focus remains on the US government shutdown, with disruptions already delaying key economic data releases. The weekly Initial Jobless Claims and August's Factory Orders, scheduled for this Thursday, will be delayed. The Bureau of Labor Statistics (BLS) confirmed on Monday that it will suspend operations during the shutdown, meaning Friday’s Nonfarm Payrolls (NFP) report is not likely to be released either.
Market movers: US government shutdown drags on, Fed rate cut bets soar
- The US government shutdown continues to dominate headlines, with no breakthrough in sight. On Wednesday, the Senate once again blocked a stopgap funding measure that had cleared the House, falling short of the 60 votes needed under Senate rules. The tally matched Tuesday’s outcome at 55-45, and with Senators leaving Washington until Friday, the shutdown is certain to last at least through the week and could drag on longer.
- On Wednesday, the US Supreme Court blocked President Donald Trump's bid to immediately remove Fed Governor Lisa Cook, keeping her in place at least until a full hearing in January. That outcome has eased some immediate concerns about the Fed’s independence.
- On the global trade front, Trump threatened last week to impose 100% tariffs on pharmaceutical imports beginning Wednesday. However, news late Wednesday confirmed the administration has delayed the rollout to allow more time for drugmakers to agree on price cuts and to expand manufacturing in the United States. Officials also wanted to avoid a sudden increase in healthcare costs and to reduce the risk of legal challenges.
- The latest ADP employment data came in sharply weaker than expected, showing that the US private sector shed 32,000 jobs in September, defying forecasts for a gain of about 50,000. Adding to the downbeat tone, August’s figure was sharply revised down to a loss of 3,000 jobs from an initially reported gain of 54,000.
- The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, hovers near a one-week low around 97.50, while US Treasury yields remain subdued across the board, with the 10-year near 4.09% and the 30-year around 4.70%, both close to two-week lows.
- Markets are all but convinced that the Fed will cut rates in October. According to the CME FedWatch tool, odds for a cut in October stand at 98.9%, while expectations for a December cut rose to 86.5% from 78% just a day earlier.
Technical analysis: XAU/USD resilient above $3,850, dip-buying trend intact
XAU/USD continues to show resilience, with buyers stepping in on minor pullbacks. Setbacks remain shallow, with demand re-emerging ahead of the $3,850 mark.
The $3,850 level is acting as immediate support, reinforced by the 21-period Simple Moving Average (SMA) on the 4-hour chart. Below that, the $3,800 psychological level stands out as strong support, where the 50-period SMA is also converging, adding additional support.
The Relative Strength Index (RSI) remains elevated, hovering close to overbought territory around 68, suggesting bullish momentum remains intact. Meanwhile, the Average Directional Index (ADX) has slipped back to around 27, indicating that trend strength is easing somewhat even as Gold holds near record highs.
Overall, as long as $3,850-$3,800 holds, the path of least resistance for the bright metal remains tilted to the upside.
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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