Gold (XAU/USD) trims earlier gains on Tuesday as sellers step in near the $4,150 area, with the metal struggling to extend Monday’s sharp advance. At the time of writing, XAU/USD is trading around $4,107, easing after touching a three-week high earlier in the European session.
Dovish Federal Reserve (Fed) expectations continue to underpin the broader sentiment, but the latest pullback suggests some profit-taking as optimism builds that the record-long United States (US) government shutdown is nearing an end, tempering safe-haven demand.
Although progress toward reopening the US government has improved the market mood, investors remain cautious. A government reopening may ease short-term worries but is unlikely to resolve deeper fiscal and economic challenges.
With the government gradually reopening, the delayed release of key economic data is expected to resume, which could strengthen the case for additional monetary policy easing if the figures confirm further signs of slowdown in the US economy.
Against this backdrop, and with persistent geopolitical risks, Gold’s near-term outlook remains constructive, with buyers likely to stay active on dips.
Market movers: US shutdown deal and mixed China trade news steer markets
- ADP data showed that the US lost an average of 11,250 private-sector jobs in the four weeks ending October 25, compared with 14,250 previously. The weak data added to bets on further Fed easing and pressured the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.30, near two-week lows, extending losses for the fifth straight day and keeping Gold supported.
- The US Senate voted 60-40 on Monday to end the record-long government shutdown that began on October 1. The vote followed a bipartisan deal reached on Sunday, with several Democrats breaking from party leadership to join Republican lawmakers. The bill will head to the House of Representatives for final approval on Wednesday, after which it will be sent to President Donald Trump for signature.
- The temporary funding deal will keep the US government operating only until January 30, leaving the risk of another partial shutdown if Congress fails to reach a longer-term agreement. Any new federal spending is expected to be financed through additional borrowing, at a time when the national debt has already climbed above $38 trillion.
- Mixed trade headlines kept investors cautious as Beijing sent conflicting signals. China announced plans to expand market access for US companies and removed “special port fees” on American-operated vessels for one year. However, The Wall Street Journal reported on Tuesday that China is working on a new export-control plan that would allow rare-earth magnet exports to civilian buyers but restrict shipments to US companies linked to defense or military use.
- Elsewhere, US President Donald Trump said on Monday that the United States is “pretty close” to reaching a trade deal with India that would lower tariffs on Indian goods. He added that talks with Switzerland were also progressing. Bloomberg reported the same day that Switzerland is close to finalizing an agreement that would reduce US import tariffs on Swiss exports to about 15% from the current 39% applied since August.
Technical analysis: XAU/USD consolidates below $4,150 after bullish breakout
XAU/USD finally broke out of its two-week consolidation range between $3,900 and $4,050 on Monday, confirming a bullish breakout. The metal now faces immediate resistance near $4,150. A decisive move above this level could strengthen bullish momentum toward $4,200 and potentially pave the way for a retest of the all-time high around $4,381.
On the downside, $4,100 acts as the first line of support, followed by stronger support near $4,050, which marks the upper boundary of the previous range. The 100-period Simple Moving Average near $4,046 also reinforces this area.
The Relative Strength Index (RSI) has climbed into overbought territory, currently near 72, suggesting that bulls should remain cautious. A brief pullback or sideways consolidation cannot be ruled out before Gold attempts its next leg higher.
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.
