Gold Price Forecast: XAU/USD holds gains near $4,000 as US shutdown lifts safe-haven demand
- Gold price drifts higher to around $3,990 in Friday's early Asian session.
- The US government shutdown is now the longest in US history, boosting the safe-haven demand.
- Employers slashed more than 150,000 jobs in October, the largest wave of layoffs in more than 20 years, noted Challenger, Gray & Christmas.
Gold price (XAU/USD) trades in positive territory near $3,990 during the early Asian session on Friday. The precious metal edges higher amid a weaker US Dollar (USD) and a renewal of safe-haven demand. Traders await the release of the flash U-Mich Consumer Sentiment survey later on Friday.
Concerns over a prolonged US government shutdown and uncertainty over the legality of tariffs could boost the safe-haven flows, supporting the Gold price. The US government shutdown has entered its sixth week, with an end to the stalemate appearing nowhere in sight. The Senate is not currently set to vote on a House-passed measure to reopen the government on Thursday, after it failed to advance for the 14th time on Tuesday.
With the US government shutdown and skepticism from US Supreme Court justices on the legality of US President Donald Trump's sweeping tariffs, "we're seeing a revival of the haven bid," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Additionally, the Challenger report showed that companies slashed over 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years. The announcement prompted the Federal Reserve (Fed) to lower interest rates at their December meeting and lift the yellow metal. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Traders will take more cues from the Fedspeak on Friday. Fed’s John Williams, Philip Jefferson and Stephen Miran are set to speak. Any hawkish remarks from Fed policymakers could lift the US Dollar (USD) and undermine the USD-denominated commodity price in the near term.
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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