Gold drifts higher amid growing concerns over US government shutdown
- Gold price rebounds in Wednesday’s Asian session.
- The ongoing US government shutdown and geopolitical tensions boost safe assets like Gold.
- A stronger US Dollar, fading expectations for additional Fed rate cuts might cap the upside for the Gold price.
Gold price (XAU/USD) edges higher to near $3,950 during the Asian trading hours on Wednesday. Fears of economic risks stemming from the ongoing US government shutdown, along with geopolitical risks and uncertainties, could boost the safe-haven flows, supporting the Gold price. The US government shutdown is poised to become the longest ever this week as the impasse between Democrats and Republicans has dragged into a new month.
Nonetheless, the upside for the precious metal might be limited as traders book profits tracking gains in the US Dollar (USD) amid fading hopes of further rate cuts by the US Federal Reserve (Fed) this year. A stronger USD makes gold more expensive for foreign buyers, reducing global demand and weighing on the non-yielding yellow metal.
Traders brace for the US October private payroll data for further cues on the Fed's monetary policy outlook. ADP Nonfarm Employment Change is expected to show 25K jobs added, compared to a 32K loss in the previous reading. Also, the US ISM Services Purchasing Managers Index (PMI) report will be released later on the same day.
Daily Digest Market Movers: Gold recovers amid a prolonged US federal shutdown
- The US federal shutdown has entered its sixth week and is poised to become the longest in US history. The latest effort to break the logjam, by passing a Republican-backed temporary legislation through Congress, failed in the Senate for the 14th time on Tuesday.
- US President Donald Trump announced a cut to fentanyl-related tariffs on imports from China, lowering the rate from 20% to 10%, and the continued freeze of some of his reciprocal levies on Chinese goods, per Bloomberg. The moves will go into effect on November 10.
- The US central bank lowered its benchmark overnight borrowing rate at its October meeting last week to a range of 3.75%-4.0%, but Fed Chair Jerome Powell said another cut this year was "not a foregone conclusion.”
- “A hesitant Fed and the strong dollar are the culprits for the selloff in gold today”, said Ole Hansen, head of commodity strategy at Saxo Bank.
- Traders have priced in about a 70% probability of a Fed rate cut in December, down from 93% a week ago, according to the CME FedWatch tool.
- The China’s RatingDog Services PMI eased to 52.6 in October from 52.9 in September. This figure came in line with the market expectation. The Manufacturing PMI declined to 50.6 in October versus 51.2 prior, worse than the estimation of 50.9.
Gold keeps the bullish vibe 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 in play as the price holds above the key 100-day Exponential Moving Average. However, in the near term, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) hovers around the midline. This displays the neutral momentum for the yellow metal.
On the bright side, the first upside barrier to watch is the $4,000 psychological level. Sustained upside momentum could take XAU/USD back up to $4,046, the high of October 31. Further north, the next resistance level is located at $4,155, the high of October 23.
On the downside, the initial support level for the yellow metal is seen at the lower limit of the Bollinger Band of $3,835. More bearish candlesticks reflect a continuation of downside pressure, possibly dragging the price down to the next bearish target at $3,722, the low of September 25.
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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