Gold Weekly Forecast: Buyers step away ahead of US-China talks, Fed meeting
- Gold staged a deep correction after a bullish opening to the week.
- The technical outlook highlights a loss of bullish momentum in the near term.
- The Fed meeting and high-level US-China trade talks to drive XAU/USD action.
Gold (XAU/USD) came under heavy bearish pressure after setting a new record-high slightly above $4,380 on Monday and snapped a nine-week winning streak. News surrounding trade negotiations between the United States (US) and China, and the Federal Reserve’s (Fed) policy announcements, could drive Gold’s valuation in the near term.
Gold declines sharply as buyers book profits
Gold gathered bullish momentum on Monday and touched a new record high of $4,381 before closing the day with a gain of more than 2%. On Tuesday, Gold made a sharp U-turn and registered its largest one-day loss of the year, losing about 5.3% on the day. In the absence of high-tier economic data releases, improving market mood on easing fears over a deepening trade conflict between the US and China weighed on Gold. Investors also may have seen that initial decline as an opportunity to book some profits in anticipation of a deeper correction.
Gold’s correction extended into the Asian session on Wednesday and XAU/USD touched its lowest level in over a week at $4,004. Following that sharp decline, Gold managed to find a foothold as market participants assessed fresh US-China trade war headlines.
Reuters reported early Thursday that the White House is considering a plan to curb an array of software-powered exports to China in retaliation against Beijing's latest round of rare earth export restrictions. "If these export controls, whether it's software, engines or other things happen, it will likely be in coordination with our G-7 allies," US Treasury Secretary Scott Bessent highlighted. On a softer tone, US President Donald Trump said that he thinks they will be able to work something out with Chinese President Xi Jinping when they meet in South Korea next week.
Following a two-day consolidation, XAU/USD edged lower early Friday and dropped below $4,100 as the US Dollar (USD) gathered some strength ahead of the September inflation data.
After the US Bureau of Labor Statistics (BLS) announced that the Consumer Price Index (CPI) rose 3% on a yearly basis in September, below the market expectation of 3.1%, the USD found it difficult to preserve its strength and helped XAU/USD find support. Other details of the inflation report showed that the CPI and core CPI increased 0.3% and 0.2%, respectively, on a monthly basis. Both of these prints came in below analysts’ estimates.
Gold investors await US-China news, Fed monetary policy decision
On Wednesday, the Fed will announce its monetary policy decision following a two-day meeting. The CME FedWatch Tool shows that markets are fully pricing in a 25-basis-points (bps) interest rate cut. Because such a decision is unlikely to trigger a market reaction, investors will scrutinize the statement and comments from Fed Chair Jerome Powell in the post-meeting press conference.
In case Powell adopts a cautious tone regarding further monetary policy easing, citing the heightened uncertainty surrounding the inflation outlook and a lack of economic data releases to confirm softening conditions in the labor market, investors could reassess the probability of a rate cut in December. In this scenario, the USD is likely to rise alongside US Treasury bond yields and weigh on XAU/USD.
On the other hand, the USD could struggle to find demand and help XAU/USD hold its ground if Powell notes that they expect the ongoing government shutdown to put additional pressure on the labor market and consumer activity. Nevertheless, the market positioning suggests that the USD doesn’t have much room left to the downside, even if investors are convinced of another 25 bps cut in December. According to the CME FedWatch Tool, markets are already pricing about a 92% chance of the Fed policy rate coming down to 3.5%-3.75% range by December from 4%-4.25%, where it currently stands.
The Asia-Pacific Economic Cooperation (APEC) Forum will be held in South Korea from October 30 to November 1. Chinese President Xi Jinping and US President Trump are expected to meet to discuss trade relations. If sides can avoid an escalation of the conflict by coming to terms on China’s proposed export controls of rare earths and the US’s increased tariff threats, Gold could lose interest as a safe-haven and continue to weaken. Conversely, Gold could start pushing higher if the Xi-Trump meeting is called off or if the sides fail to find a middle ground to extend the trade truce.
Gold technical analysis
Gold returned to the six-month-old ascending regression channel and the Relative Strength Index (RSI) indicator on the daily chart dropped below 60, showing that XAU/USD finally corrected its overbought conditions. This technical development also highlights a loss of bullish momentum, while the long-term uptrend coming from January remains intact.
On the downside, $4,000 (round level, static level) aligns as an interim support level before $3,970 (Fibonacci 38.2% retracement of the August-October rally) and $3,870-$3,845 (mid-point of the ascending channel, Fibonacci 50% retracement). Looking north, the first resistance area could be spotted at $4,130-$4,140 (upper limit of the ascending channel, Fibonacci 23.6% retracement) ahead of $4,200 (round level, static level) and $4,380 (record-high).
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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
