Gold (XAU/USD) builds on its steady intraday ascent and climbs further beyond the $4,000 psychological mark during the Asian session on Monday. Comments from US President Donald Trump suggested that his administration may restrict the flow of cutting-edge artificial intelligence (AI) hardware to its strategic rival, China. This turns out to be a key factor that provides a modest lift to the safe-haven precious metal. Apart from this, concerns about economic risks stemming from a prolonged US government shutdown further seem to underpin the commodity.
Meanwhile, the US Federal Reserve’s (Fed) hawkish tilt assists the US Dollar (USD) to preserve last week’s gains to its highest level since early August and might cap the non-yielding Gold. This, along with the bullish tone around the equity markets, makes it prudent to wait for strong follow-through buying before positioning for an extension of the recent bounce from sub-$3,900 levels, or an over three-week low, touched last Tuesday. Traders now look to the US ISM Manufacturing PMI and speeches from influential FOMC members for short-term opportunities.
Daily Digest Market Movers: Gold remains supported by reviving safe-haven demand
- US President Donald Trump told reporters aboard Air Force One on Sunday that Nvidia’s advanced Blackwell chip for artificial intelligence would not be available to other people. This, to some extent, offsets the latest optimism fueled by the de-escalation of trade tensions between the US and China – the world’s two largest economies – and provides a modest lift to the safe-haven Gold at the start of a new week.
- The US government shutdown enters Day 33 on Monday amid a deadlock in Congress on the Republican-backed funding bill. Trump again urged Republican senators to end the shutdown by abolishing the filibuster rule, an unprecedented move that GOP leaders have, so far, resisted. Nevertheless, concerns that a prolonged government closure could cause economic damage further underpin the precious metal.
- The US Federal Reserve lowered borrowing costs by 25 basis points for the second time this year last Wednesday and also said it would stop reducing the size of its balance sheet as soon as December, marking the end of its quantitative tightening. That said, Fed Chair Jerome Powell cautioned that another similarly-sized interest rate cut is far from a foregone conclusion at the next monetary policy meeting in December.
- Furthermore, a slew of influential FOMC members further pushed back against expectations for more policy easing by the end of this year. This, in turn, assists the US Dollar to preserve last week’s strong gains and stand firm near its highest level since early August. Apart from this, the upbeat market mood could keep a lid on further appreciation for the non-yielding yellow metal and warrants caution for bullish traders.
- Traders now look forward to Monday’s US economic docket, featuring the release of the ISM Manufacturing PMI later during the North American session. Apart from this, speeches from influential FOMC members will play a key role in driving the USD demand and providing a fresh impetus to the commodity.
Gold might face still resistance near $4,045-4,050
The XAU/USD pair showed some resilience below the 100-hour Simple Moving Average (SMA) during the Asian session. Moreover, oscillators on hourly/daily charts have again started gaining positive traction and back the case for additional gains. However, it will be prudent to wait for a sustained move beyond the $4,045-4,050 hurdle, above which the Gold price could climb to the $4,075 intermediate hurdle before aiming to reclaim the $4,100 mark.
On the flip side, the Asian session low, around the $3,963-3,962 region, now seems to protect the immediate downside ahead of the $3,917-3,916 region and the $3,900 round figure. Some follow-through selling below the $3,886 zone, or an over three-week low touched last Tuesday, could make the Gold price vulnerable to accelerate the fall towards the $3,850-3,845 zone en route to the $3,800 mark and the next relevant supports near the $3,765-3,760 zone.
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.
