Gold extends record-setting rally beyond $4,000; shrugs off a broadly firmer USD

Gold buying remains unabated on Thursday amid a combination of supporting factors.
Fed rate cut bets and the US government shutdown underpin the safe-haven commodity.
The XAU/USD bulls seem unaffected by the recent USD rise to an over one-month top.

Gold (XAU/USD) is prolonging its recent record-setting rally and building on the momentum beyond the $4,000 psychological mark during the Asian session on Wednesday. Mounting economic uncertainties on the back of the US government shutdown, along with firming expectations of further interest rate cuts by the US Federal Reserve (Fed), turn out to be key factors driving flows towards the safe-haven bullion. Furthermore, rising trade and geopolitical tensions, alongside solid central bank buying, contribute to the strong move up amid a slight deterioration in the global risk sentiment.

The aforementioned supportive factors help offset some follow-through US Dollar (USD) buying, which tends to undermine demand for the commodity. Even extremely overbought conditions on short-term charts do little to dent the bullish sentiment around the Gold price or hinder the momentum. This, in turn, suggests that the path of least resistance for the XAU/USD pair remains to the upside. Traders now look to the FOMC Minutes, due later today, which, along with Fed Chair Jerome Powell's appearance on Thursday, might offer rate-cut cues and provide a fresh impetus to the non-yielding yellow metal.

Daily Digest Market Movers: Gold uptrend remains uninterrupted amid a supportive fundamental backdrop

The US government shutdown enters its second week amid few signs of progress toward a deal as Republicans and Democrats remain committed to their positions. The government funding impasse adds a layer of uncertainty and could affect the US economic performance in the face of uncertainties over global trade.
The start of the Federal Reserve’s monetary easing cycle in September, along with bets for more rate cuts, has also been a boon for the non-yielding yellow metal. In fact, traders are now pricing in a greater chance that the US central bank will lower borrowing costs by 25 basis points each in October and December.
According to the World Gold Council trade association, a record $64bn has been invested so far this year in bullion-backed Exchange Traded Funds (ETF), which also saw their biggest monthly inflow in more than three years in September. This points to extra urgency as investors seek protection from potential market shocks.
The relentless rally is not deterring central banks around the world from stacking up gold to diversify their foreign exchange reserves away from US debt. In fact, the latest data revealed that global central banks made net additions of 15 tonnes to their Gold reserves in August, led by the National Bank of Kazakhstan.
The US Dollar climbs to its highest level since August 25 amid a broadly weaker Japanese Yen and the Euro, which continue to be weighed down by domestic political uncertainties. A stronger USD, however, does little to dent the strong bullish sentiment surrounding the commodity or hinder the ongoing momentum.
The market focus now shifts to the release of the FOMC meeting Minutes, due later today. Apart from this, Fed Chair Jerome Powell's appearance on Thursday would be looked upon for more cues about the interest rate cut path. This, in turn, will drive the USD and provide a fresh impetus to the XAU/USD pair.

Gold seems poised to accelerate further above ascending channel resistance

Wednesday's sustained move beyond the $4,000 mark confirms a fresh breakout through an ascending channel extending from mid-September. Moreover, the Gold price, so far, has defied overbought conditions on short-term charts. This, in turn, backs the case for an extension of the recent well-established uptrend witnessed over the past two months or so.

Meanwhile, any corrective pullback below the $4,000 round figure might now find decent support and attract fresh buyers near the $3,975 horizontal zone. A convincing break below, however, could trigger some long-unwinding and drag the Gold price to the next relevant support near the $3,948-3,947 region. The subsequent fall might expose the ascending channel support near the $3,900 mark.

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.