Gold surges past $4,200 as trade tensions, Fed easing bets fuel demand
- Gold extends its record-breaking rally, climbing above $4,200 to post new all-time highs amid strong safe-haven demand.
- US-China trade tensions escalate further after President Trump threatens to terminate select trade ties.
- Fed rate cut bets remain firmly priced in, with futures implying back-to-back 25 bps moves in October and December.
Gold (XAU/USD) continues its record-breaking run on Wednesday, scaling fresh all-time highs above $4,200 as robust safe-haven flows keep demand elevated. The yellow metal has been setting fresh all-time highs almost daily, underpinned by persistent global economic and political uncertainty alongside growing expectations of a dovish Federal Reserve (Fed) stance.
At the time of writing, XAU/USD is hovering around $4,200, up nearly 1.4% on the day after hitting a fresh record high of $4,218 earlier in the European session.
The latest leg higher in Gold comes as the US-China trade war deepens, with both sides ramping up threats and retaliatory measures. At the same time, the prolonged United States (US) government shutdown has further bolstered Bullion’s safe-haven appeal.
Adding to the momentum, a softer US Dollar (USD) and subdued Treasury yields lend additional support, keeping Gold anchored near record highs. Meanwhile, persistent geopolitical tensions and steady institutional demand keep the broader outlook for Gold firmly tilted to the upside.
Market movers: Markets on edge as Trump escalates trade war, IMF flags growth risks
- Trade headlines remain front and center, dominating market sentiment as the US-China trade conflict intensifies. In the latest escalation, US President Donald Trump proposed terminating select trade ties with China.
- Posting on Truth Social late Tuesday, Trump said, “I believe that China purposefully not buying our soybeans, and causing difficulty for our soybean farmers, is an economically hostile act. We are considering terminating business with China having to do with cooking oil, and other elements of trade, as retribution. As an example, we can easily produce cooking oil ourselves — we don’t need to purchase it from China.”
- IMF Chief Economist Pierre-Olivier Gourinchas said on Tuesday that the renewed escalation in the US-China trade war represents a fresh downside risk to the global economy. Gourinchas cautioned that the potential impact is not yet fully reflected in the IMF’s baseline forecasts and warned that prolonged tariff uncertainty could weigh on global investment and trade flows.
- Federal Reserve (Fed) Chair Jerome Powell, speaking at the National Association for Business Economics (NABE) conference on Tuesday, struck a balanced tone, acknowledging that the labor market has “softened considerably” since July but warning that inflation is “still on the way up.” Powell noted that there are now “pretty significant downside risks” to employment, yet cautioned that moving too quickly could leave the inflation fight unfinished.
- Markets remain convinced that the Fed will continue lowering rates in the coming months despite Powell’s cautious tone. According to the CME FedWatch tool, traders are pricing in a 97% probability of another 25 basis point (bps) interest rate cut at the October 29-30 meeting, followed by a 95% chance of a similar move in December.
- The US economic calendar remains light on Wednesday, with the September Consumer Price Index (CPI) report postponed to October 24 due to the ongoing US government shutdown. The Fed’s Beige Book is scheduled for release later in the day, accompanied by remarks from several Fed officials, as markets approach the pre-meeting blackout period beginning October 18.
Technical analysis: XAU/USD may cool off before the next leg higher amid stretched RSI
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XAU/USD bulls are showing no sign of backing down, extending their dominance even as momentum indicators flash signs of exhaustion.
On the 4-hour chart, immediate support is seen around the $4,180-$4,160 zone, which closely aligns with the 21-period Simple Moving Average (SMA). A deeper pullback could find additional buying interest near $4,100, where the 50-SMA provides further dynamic support. Any dip toward these levels is likely to attract fresh buying, keeping the broader uptrend intact.
That said, some caution is warranted as the Relative Strength Index (RSI) remains elevated around 75, reflecting overbought conditions. More importantly, a bearish divergence has emerged on the 4-hour RSI. This suggests the ongoing rally could enter a consolidation phase before another potential leg higher. Meanwhile, the Average Directional Index (ADX) hovers around 32, signaling a strong uptrend.
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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