Gold hovers near record highs as US Dollar and yields firm, market eyes $4,000 level
- Gold hovers just below record highs near $3,977 as safe-haven demand persists amid the prolonged US government shutdown.
- A firmer US Dollar and rising Treasury yields cap upside momentum with traders cautious near the $4,000 psychological mark.
- Technical indicators highlight stretched conditions with overbought signals flagging risks of a short-term pullback.
Gold (XAU/USD) continues its historic climb, notching yet another all-time high near $3,977 on Tuesday. The precious metal’s advance reflects deepening market anxiety as investors seek refuge in safe-haven assets amid the prolonged United States (US) government shutdown and mounting expectations of further interest rate cuts by the Federal Reserve (Fed).
At the time of writing, XAU/USD is trading around $3,970, hovering just below its record highs at the start of the American session. The pause suggests that near-term momentum may be easing, with traders turning cautious as the metal approaches the $4,000 psychological mark amid momentum indicators flagging risks of uptrend exhaustion.
A renewed strength in the US Dollar (USD) and rising Treasury yields are also tempering Gold’s advance. The Greenback’s advance comes as political upheaval in Japan and France rattles currency and bond markets for a second day, prompting flows back into the USD and lifting yields, which in turn are acting as a short-term headwind for Bullion.
In the wider context, investors continue to position for a more dovish Fed, with markets pricing in back-to-back rate cuts in October and December. The lower-rate outlook, alongside persistent geopolitical tensions and steady central bank buying, keeps the longer-term trajectory for Bullion tilted to the upside.
Market movers: US Dollar and Treasury yields rise as the US shutdown drags on
- The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, is up nearly 0.42%, trading around 98.50, close to a one-month high. US Treasury yields are rising across the curve, with the benchmark 10-year yield extending its advance for a third straight session, trading around 4.17% near a two-week high, while the 30-year yield is hovering near 4.77%, also close to a two-week peak.
- China’s central bank added Gold to its reserves for the eleventh straight month in September, with People's Bank of China (PBOC) data on Tuesday showing holdings rising to 74.06 million fine troy ounces from 74.02 million in August.
- The US government shutdown has entered its seventh day with no clear sign of a deal to end the stalemate. On Monday, the Senate held a fresh vote on a stopgap funding bill to reopen the government, but it failed as expected with a margin of 52-42, falling short of the 60 votes needed by Republican leadership to advance the measure.
- The prolonged US government shutdown is raising downside risks to the labor market, with the White House warning that an extended impasse could result in a permanent reduction in federal workforce levels. On Monday, President Trump told reporters he was open to negotiating with Democrats over healthcare subsidies, saying, “We are speaking with the Democrats, and some very good things could happen with respect to health care.”
- Kansas City Fed President Jeff Schmid struck a hawkish tone on Monday, saying the “current stance of policy is only slightly restrictive, which I think is the right place to be,” stressing that “inflation is too high” and that the cooling labor market is “consistent with relieving price pressure and returning inflation to 2%.”
- Looking ahead, the US economic calendar is relatively light, with attention turning to remarks from Atlanta Fed President Raphael Bostic, Fed Governors Michelle Bowman and Stephen Miran, and Minneapolis Fed President Neel Kashkari.
Technical analysis: XAU/USD technicals flag overextended rally despite firm uptrend
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The daily chart shows Gold’s uptrend remains firmly in place, with spot prices trading well above key moving averages. Immediate support is seen at the $3,950 level, followed by a stronger floor near $3,900, while the 21-day SMA at $3,756 sits further below as the next dynamic support.
Momentum indicators highlight stretched conditions with the Relative Strength Index (RSI) at 83.41 and the Stochastic Oscillator near 97, both signaling that the market is in deeply overbought territory.
Trend strength remains robust, as reflected by an elevated ADX reading above 53, yet the combination of strong trend and extreme momentum readings warns that the uptrend may be approaching exhaustion, increasing the risk of a short-term pullback toward lower support levels.
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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