Gold trades below record highs as US shutdown drags on; ISM Services PMI softens
- Gold holds firm above $3,850 on Friday after Thursday’s volatile swings.
- US government shutdown uncertainty and Fed cut bets keep safe-haven bid intact.
- US ISM Services PMI fell to 50.0 in September from 52.0 in August.
Gold (XAU/USD) gains ground above $3,850 on Friday, trading around $3,875 during the American session, up nearly 0.50% on the day. The metal has recovered from an intraday low near $3,838, finding fresh bids as the US Dollar (USD) eases following Thursday’s modest rebound.
The broader outlook for Gold remains tilted to the upside, while pullbacks are likely to attract dip-buying interest, supported by safe-haven demand as the United States (US) government shutdown drags into a third day. Moreover, growing expectations that the Federal Reserve (Fed) will cut interest rates later this month provide an additional tailwind for the metal.
Looking ahead, with the September Nonfarm Payrolls (NFP) report delayed due to the political gridlock in Washington, market attention turned to the US ISM Services Purchasing Managers Index (PMI), which underscored signs of cooling momentum. The headline index slipped to 50.0 in September, missing expectations of 51.7 and down from 52.0 in August.
Market movers: US government shutdown weighs on growth outlook and Fed path
- The ISM’s report showed the New Orders Index plunged to 50.4 from 56.0, while the Employment Index remained in contraction at 47.2, marking the fourth straight month of job weakness despite a slight uptick from 46.5. In contrast, the S&P Global Services PMI eased only slightly to 54.2 in September from 54.5, and the Composite PMI edged down to 53.9 from 54.6, both still pointing to moderate expansion.
- Speaking on CNBC’s Squawk Box on Thursday, US Treasury Secretary Scott Bessent urged Congress to pass a “clean continuing resolution” to fund the government and cautioned that “shutting down the government and lowering the GDP… could see a hit to the GDP, a hit to growth and a hit to working America.”
- According to a White House memo cited by Politico, the US economy risks losing about $15 billion in GDP each week the government remains closed, while a month-long stalemate could push an additional 43,000 people into unemployment.
- Chicago Fed President Austan Goolsbee told Fox Business on Thursday that if the shutdown halts official data releases, the Fed will “turn to other data sources” to guide its decisions. He added that the Chicago Fed’s real-time indicator points to a steady Unemployment Rate around 4.3% and a generally stable labor market, noting the Fed will “make a decision with the information it has” in the absence of official BLS statistics.
- Dallas Fed President Lorie Logan struck a hawkish note on Thursday, saying the recent rate cut should be viewed as “insurance” and warning the central bank must be “very cautious about rate cuts” given that inflation remains above target.
- The Fed faces a murkier outlook as the shutdown disrupts key data releases. Friday’s Nonfarm Payrolls (NFP) report is unlikely to go ahead and the September Consumer Price Index (CPI), scheduled for October 15, could also be postponed, leaving policymakers with limited guidance ahead of the October 28-29 FOMC meeting.
- The US Dollar Index (DXY), which measures the Greenback against a basket of six major currencies, eased slightly after rebounding from a one-week low on Thursday and was last seen trading around 97.81, remaining under pressure.
Technical analysis: XAU/USD steadies near 21-SMA; dip-buying interest persists
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XAU/USD steadies after Thursday’s volatile swings with dip-buyers emerging on pullbacks. The $3,860-$3,865 area is acting as immediate near-term resistance with the price testing the 21-period Simple Moving Average (SMA) around $3,859 on the 4-hour chart.
Initial support lies at the intraday low near $3,838, followed by Thursday’s trough around $3,820. A decisive break below these levels could invite deeper corrective pressure, though dip-buying interest has remained evident. On the upside, a move above the $3,860-$3,865 barrier would clear the way for a retest of the all-time high near $3,896.
The Relative Strength Index (RSI) also stabilizes after easing from overbought territory and is now hovering just above the neutral level around 55. This suggests the market is taking a breather after recent gains, which could either precede another leg higher or lead to a period of consolidation.
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.
