Gold slides below $3,850 as Greenback rebounds.
- Gold eases off record highs on Thursday as US Dollar rebounds.
- Safe-haven demand remains underpinned by the ongoing US government shutdown.
- Markets expect the Fed to cut rates by 25 bps in October, while bets for December have risen to 86.5%.
Gold (XAU/USD) trades with a negative bias on Thursday, trimming recent gains after posting a fresh all-time high near $3,895 on Wednesday. At the time of writing, XAU/USD trades around $3,820 during the American session, down over 1.0% after briefly retesting the record peak.
The fundamental backdrop still leans supportive. The United States (US) government shutdown is stoking safe-haven interest, while growing conviction that the Federal Reserve (Fed) will cut interest rates later this month is keeping Treasury yields subdued, which bolsters the case for holding the non-yielding metal.
Near term, focus remains on the US government shutdown, with disruptions already delaying key economic data releases. The weekly Initial Jobless Claims and August's Factory Orders, scheduled for this Thursday, will be delayed. The Bureau of Labor Statistics (BLS) confirmed on Monday that it will suspend operations during the shutdown, meaning Friday’s Nonfarm Payrolls (NFP) report is not likely to be released either.
Market movers: US government shutdown drags on, Fed rate cut bets soar
- The US government shutdown continues to dominate headlines, with no breakthrough in sight. On Wednesday, the Senate once again blocked a stopgap funding measure that had cleared the House, falling short of the 60 votes needed under Senate rules. The tally matched Tuesday’s outcome at 55-45, and with Senators leaving Washington until Friday, the shutdown is certain to last at least through the week and could drag on longer.
- On Wednesday, the US Supreme Court blocked President Donald Trump's bid to immediately remove Fed Governor Lisa Cook, keeping her in place at least until a full hearing in January. That outcome has eased some immediate concerns about the Fed’s independence.
- On the global trade front, Trump threatened last week to impose 100% tariffs on pharmaceutical imports beginning Wednesday. However, news late Wednesday confirmed the administration has delayed the rollout to allow more time for drugmakers to agree on price cuts and to expand manufacturing in the United States. Officials also wanted to avoid a sudden increase in healthcare costs and to reduce the risk of legal challenges.
- The latest ADP employment data came in sharply weaker than expected, showing that the US private sector shed 32,000 jobs in September, defying forecasts for a gain of about 50,000. Adding to the downbeat tone, August’s figure was sharply revised down to a loss of 3,000 jobs from an initially reported gain of 54,000.
- The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, is recovering modestly from a one-week low, edging back toward the 98.00 mark. US Treasury yields remain subdued across the board, with the 10-year near 4.09% and the 30-year around 4.70%, both close to two-week lows.
- Markets are all but convinced that the Fed will cut rates in October. According to the CME FedWatch tool, odds for a cut in October stand at 98.9%, while expectations for a December cut rose to 86.5% from 78% just a day earlier.
Technical analysis: XAU/USD slips below $3,850, dip-buying trend intact
XAU/USD continues to show resilience, though the latest pullback has dragged the price back under the $3,850 mark. Buyers had been stepping in on minor dips, but the move highlights some caution after record highs.
The $3,850 level is now acting as immediate resistance, reinforced by the 21-period Simple Moving Average (SMA) on the 4-hour chart. The next support lies at the $3,800 psychological mark.
The Relative Strength Index (RSI) on the 4-hour chart has eased from overbought territory to neutral level, suggesting bullish momentum is fading. Meanwhile, the Average Directional Index (ADX) has slipped back to around 25, indicating that trend strength is easing somewhat.
Overall, as long as $3,800 holds, the path of least resistance for the bright metal remains tilted to the upside.
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.
Author
Vishal Chaturvedi
FXStreet
I am a macro-focused research analyst with over four years of experience covering forex and commodities market. I enjoy breaking down complex economic trends and turning them into clear, actionable insights that help traders stay ahead of the curve.
