Gold declines as traders brace for trade talks, US CPI inflation data
- Gold price loses momentum in Friday’s Asian session.
- Renewed US Dollar demand and the end of the Diwali festival in India could prompt traders to take some profits.
- The US CPI inflation data for September will be in the spotlight on Friday.
Gold price (XAU/USD) edges lower below $4,150 during the Asian trading hours on Friday, pressured by the rebound in the US Dollar (USD). Traders remain cautious after a sharp sell-off over the previous sessions. Analysts believe that the end of the Diwali festival in India, the world’s second-largest gold consumer, might reduce physical demand and undermine the precious metal price.
Nonetheless, the prolonged US government shutdown and global trade tensions could boost the safe-haven flows, supporting the yellow metal. The expectation of US interest rate cuts might contribute to Gold’s upside. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
All eyes will be on the delayed release of the US Consumer Price Index (CPI) inflation data for September, which will be published later on Friday. Economists estimated the headline US CPI to increase by 0.4% MoM in September, putting the 12-month inflation rate at 3.1%. Excluding food and energy, core CPI is expected to show a 0.3% monthly increase and a rise of 3.1% on an annual basis.
Daily Digest Market Movers: Gold retreats ahead of key US inflation data, US-China trade talks
- High-level trade negotiations between the US and China are set to begin in Malaysia later on Friday. China's Vice-Premier He Lifeng will participate in the meetings, as well as US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer.
- US President Donald Trump and Chinese President Xi Jinping will meet next Thursday on the sidelines of the Asia-Pacific Economic Cooperation summit.
- The Trump administration is considering a plan to restrict a broad range of software-driven exports to China to retaliate against Beijing's latest round of rare earth export restrictions, Reuters reported late Wednesday.
- The US government shutdown on Friday has entered its 24th day, becoming the second-longest federal funding lapse ever, with no end in sight. The GOP-backed stopgap bill failed to pass in the Senate for a 12th time on Wednesday. The 54-46 vote fell mostly along party lines.
- US President Donald Trump on Wednesday imposed Ukraine-related sanctions on Russia for the first time in his second term, targeting oil companies Lukoil and Rosneft.
- The Federal Reserve (Fed) is likely to lower its key interest rate by 25 basis points (bps) next week and again in the December policy meeting, according to a Reuters poll.
- The CME FedWatch tool showed a 97% chance of a 25 basis points (bps) rate cut.
Gold clings to a bullish stance in the longer term above the key EMA
Gold price trades on a positive note on the day. According to the daily chart, the positive outlook of the precious metal remains intact as the price holds above the key 100-day Exponential Moving Average. The upward momentum is supported by the 14-day Relative Strength Index (RSI), which stands above the midline near 60.0.
On the bright side, the first upside barrier to watch is $4,218, the high of October 15. Sustained upside momentum could take XAU/USD back up to the $4,330, the high of October 16. Further north, the next resistance level is located at the upper boundary of the Bollinger Band of $4,365.
On the other hand, the initial support level for yellow metal is seen at $4,066, the low of October 23. More bearish candlesticks reflect a continuation of downside pressure, possibly dragging the price down to the next bearish target at the $4,000 psychological level, followed by the October 10 low of $3,947.
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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