Gold rallies to new record high as economic risks and Fed rate cut bets boost demand

Gold extends its record-setting run on Thursday amid a supportive fundamental backdrop.
Fresh US-China trade tensions and geopolitical risks underpin the safe-haven precious metal.
Fed rate cut bets and US government closure weigh on the USD, offering additional support.

Gold (XAU/USD) is prolonging its uptrend for the fifth straight day and scaling new record highs through the Asian session on Thursday amid global anxieties. Investors remain worried about economic risks stemming from the US government shutdown, US-China trade war, and rising geopolitical tensions, which continue to drive flows towards the traditional safe-haven bullion. Apart from this, dovish Federal Reserve (Fed) expectations turn out to be another factor underpinning demand for the non-yielding yellow metal.

In fact, traders now seem to have nearly fully priced in the possibility that the US central bank will lower borrowing costs two more times this year. The outlook drags the US Dollar (USD) to an over one-week low and backs the case for a further near-term appreciating move for the Gold. Meanwhile, the XAU/USD bulls seem unaffected by extremely overbought conditions on short-term charts. This further validates the near-term positive outlook for the commodity ahead of speeches from a slew of influential FOMC members.

Daily Digest Market Movers: Gold remains well supported by global flight to safety, dovish Fed, weaker USD

The partial federal government shutdown has extended into a third week, with no resolution in sight. The vote on the Republican-backed stopgap funding bill to reopen the government fell short of the votes needed for passage in the Senate for the ninth time on Wednesday.
Investors seem worried that a prolonged US government closure would affect the economic performance. A Treasury official said that the shutdown may cost the US economy $15 billion a week in lost output, correcting an earlier statement from Treasury Secretary Scott Bessent.
U.S.-China trade tensions escalated further after both sides imposed tit-for-tat port fees this week. Adding to this, US President Donald Trump said that he was considering terminating the cooking oil trade with China in retaliation to the latter's refusal to purchase American soybeans.
Trump said that he saw the US as locked in an all-out trade war with China. However, US Treasury Secretary Scott Bessent proposed a pause of import duties on Chinese goods for longer than three months if China halts its plan for strict export controls on rare-earth elements.
On the geopolitical front, US Defense Secretary Pete Hegseth warned Russia of possible costs for its continued aggression if the war in Ukraine does not come to an end. Moreover, Trump had said that he is considering providing Ukraine with longer-range Tomahawk cruise missiles.
US Federal Reserve Chair Jerome Powell struck a dovish tone on Tuesday, saying that the labor market remained mired in its low-hiring, low-firing doldrums through September. This reaffirms market bets for a 25-basis-point Fed rate cut at each of the October and December meetings.
The US Dollar prolongs its downtrend for the third straight day and drops to an over one-week low during the Asian session on Thursday. This contributes to an extension of the recent record-setting run in the Gold price and backs the case for a further near-term appreciating move.
In the absence of any major market-moving economic releases, speeches from a slew of influential FOMC members will be scrutinized for rate-cut cues. This will play a key role in driving the USD demand and providing some meaningful impetus to the non-yielding yellow metal.

Gold uptrend remains uninterrupted as bulls shrug off extremely overbought conditions

The XAU/USD pair has been trending higher along an upward-sloping trend line over the past month or so. Furthermore, the overnight sustained break and acceptance above the $4,200 round figure could be seen as a fresh trigger for bulls. However, an extremely overbought daily Relative Strength Index (RSI) warrants caution before positioning for a further appreciating move.

Meanwhile, any corrective pullback could attract some buyers near the $4,200 mark, which, in turn, should limit the downside for the Gold near the $4,180-4,175 region. A convincing break below the latter, however, might prompt some technical selling and drag the commodity to the $4,135-4,135 intermediate support en route to the $4,100 mark. The next relevant support is pegged near the $4,060-4,055 region, which, if broken decisively, could be seen as the first sign that the XAU/USD pair has topped out in the near term.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.