Gold continues its battle with the $4,150 barrier early Wednesday, preserving the previous bullish momentum, in anticipation of a potential end to the government shutdown.
Gold eyes on House vote for US government reopening
Gold buyers are catching their breath after three straight days of gains, helped by the renewed optimism surrounding the US government reopening, which fuelled ‘buy-everything’ momentum across the markets.
Persistent risk flows continue to reduce the US Dollar’s (USD) appeal as a safe haven, with its demand further hit by renewed calls for aggressive interest rate cuts by the US Federal Reserve (Fed) in the coming months.
Amid the record government shutdown, the focus has remained on the US private data publication. Tuesday’s weekly Employment Change data released by the ADP underscored concerns over the weakening labor market, reviving hopes of further Fed easing.
The latest ADP data showed that US firms lost more than 11,000 jobs a week through late October, prompting markets to now price in about 68% chances of a December Fed rate cut versus 62% seen prior to the data release.
Asian markets cheer weak US jobs report-led dovish Fed bets, while the US Treasury bond yields incur losses, cushioning any downside in Gold. However, the modest rebound in the USD is limiting Gold’s three-day uptrend.
Looking ahead, a temporary pullback in Gold cannot be ruled out as markets brace for the resumption of US economic data publications, which could shed more light on the Fed’s path forward on interest rates.
Further, the focus will remain on the Republican-controlled House vote, due late Wednesday, on a compromise that would restore funding to government agencies and end a shutdown that started on October 1.
Gold price technical analysis: Daily chart
As observed on the daily chart, the 14-day Relative Strength Index (RSI) is turning slightly lower, currently near 59, but remains well above the midline.
The leading indicator, thus, suggests that any downtick in Gold could be short-lived.
That being said, Gold closed Tuesday above $4,129, the 23.6% Fibonacci Retracement level of the parabolic rise to the record high that began on August 19.
However, buyers need to crack the $4,150 hurdle on a sustained basis to initiate a fresh uptrend toward the record high of $4,382.
Ahead of that, the $4,200 round level will be put to test.
Conversely, the initial support is located at the 21-day Simple Moving Average (SMA) at $4,085, below which the $4,050 psychological level will be challenged.
The line in the sand for Gold buyers is seen at $3,973, the 38.2% Fibo level of the same advance.
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.