Gold price (XAU/USD) tumbles below $4,100 during the Asian trading hours on Wednesday. The precious metal extends the decline after facing its steepest selloff in over a decade as traders booked profits following an extended rally that saw the commodity rise for nine straight weeks while hitting successive records.
Additionally, the United States (US)-China trade tensions appear to have eased as both sides are slated to work out a deal ahead of the November 1 tariff deadline. This, in turn, could undermine the safe-haven demand.
On the other hand, concerns over the impact of the US government shutdown and ongoing fears about unsustainable government debt globally might help limit the yellow metal’s losses. The growing expectation that the US Federal Reserve (Fed) will deliver another quarter-point rate cut in the October policy meeting could lift the Gold price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Looking ahead, traders will closely monitor the US September Consumer Price Index (CPI) inflation data later on Friday due to the government shutdown-driven data drought.
Both headline and core CPI are expected to show a rise of 3.1% YoY in September. Any signs of a hotter-than-expected US inflation could lift the US Dollar (USD) and weigh one the USD-denominated commodity price in the near term.
Daily Digest Market Movers: Gold faces some selling pressure as rally cools
- The US government shutdown has entered its fourth week as the Senate on Monday failed for the 11th time to advance a House-passed measure to fund the government and end the ongoing shutdown. The 50-43 vote fell mostly along party lines.
- US President Donald Trump last week threatened a new 100% tariff on China. He softens his stance over the weekend, saying that high tariffs on China are unsustainable and expressing willingness for smoother relations with China.
- Trump late Wednesday predicted an upcoming meeting with his Chinese President Xi Jinping would yield a “good deal” on trade. However, he also conceded that the highly anticipated talks may not happen.
- US Treasury Secretary Scott Bessent is set to meet with his Chinese counterparts to discuss a de-escalation of trade tensions ahead of the U.S.-China trade talks.
- Trump said late Tuesday that he did not want a “wasted meeting” after a plan to have face-to-face talks with his Russian counterpart, Vladimir Putin, about the war in Ukraine was put on hold, per the BBC.
- Traders are currently pricing in nearly a 99% possibility that the US central bank will cut interest rates again next week, followed by another reduction in December, according to the CME FedWatch tool.
Gold retains a positive tone in the longer term
Gold price trades in negative territory on the day. According to the daily timeframe, the constructive outlook of the precious metal remains intact, characterized by the price holding above the key 100-day Exponential Moving Average. However, further consolidation or temporary sell-off cannot be ruled out as the 14-day Relative Strength Index (RSI) is pointing to the midline, indicating the neutral momentum in the near term.
On the bright side, the first upside barrier to watch is $4,140, the high of October 15. Any follow-through buying above this level could pave the way to $4,330, the high of 16. Further north, the next hurdle is seen in the $4,370-$4,380 zone, representing the all-time high and the upper boundary of the Bollinger Band.
In the bearish case, the 4,000 psychological level acts as a key support level for XAU/USD. The additional downside filter emerges at $3,947, the low of October 10. The next contention level is located at $3,838, the low of October 3.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
