Gold (XAU/USD) trades around $4,021 on Thursday, down 0.50% on the day at the time of writing, yet comfortably holding above the key $4,000 psychological mark. The metal is consolidating after a sharp rally that sent it to a new all-time high of $4,059 on Wednesday, driven by strong safe-haven flows amid mounting political and geopolitical uncertainty.
The prolonged US government shutdown, now in its ninth day, continues to fuel market concerns. The deadlock in Congress is preventing the resumption of federal operations and disrupting the release of key economic data, starting with last Friday’s Nonfarm Payrolls (NFP) report. The lack of visibility on the state of the US economy is complicating the Federal Reserve’s (Fed) policy outlook and reinforcing expectations of imminent rate cuts.
According to the CME FedWatch tool, markets are now pricing in a nearly 100% chance of a rate cut in October, followed by another move in December. This prospect is putting downward pressure on US Treasury yields and the US Dollar (USD), both of which support the price of Gold.
On the geopolitical front, tensions remain despite signs of short-term relief. US President Donald Trump announced on Wednesday that Israel and Hamas had agreed to the first phase of a US-brokered ceasefire plan. While the announcement helped ease immediate concerns, analysts remain cautious about the sustainability of the truce, as the war in Ukraine and broader US-China tensions continue to weigh on global sentiment.
The combination of US political paralysis, a dovish shift in Fed expectations, and persistent safe-haven demand keeps Gold well supported near record highs.
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.