Gold price (XAU/USD) climbs to above $4,050 during the early European trading hours on Monday. The precious metal edges higher amid uncertainty over the US economic outlook. Traders ramped up bets on a US rate cut following weak US private jobs data and a downbeat University of Michigan (UoM) Consumer Sentiment Index survey. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
On the other hand, signs that the US government shutdown may end could undermine safe-haven assets such as Gold. US senators are voting on a deal on Monday that could end the longest government shutdown in history. Furthermore, easing trade tensions between the US and China, the world’s two largest economies, could also drag the yellow metal lower in the near term.
Traders will closely monitor the US October Consumer Price Index (CPI) inflation data later on Thursday. The headline CPI is expected to show an increase of 0.2% MoM in October, while the core CPI is projected to show a rise of 0.3% MoM during the same period. The US Retail Sales will be in the spotlight on Friday.
Daily Digest Market Movers: Gold gains momentum as uncertainty grows
- The Senate has adjourned until 11 a.m. on Monday, when it will continue considering legislation to reopen the government after tonight’s breakthrough. Meanwhile, House Democratic leadership has informed members that votes are planned later this week. Lawmakers will be given 36 hours’ notice before any votes are called as they manage travel delays and cancellations during the shutdown.
- The US government shutdown is nearing an end after a group of centrist Senate Democrats agreed to support a deal to reopen the government and fund some departments and agencies for the next year, per Bloomberg. The measure would fund certain departments through January 30.
- China’s Ministry of Commerce said on Sunday that it would temporarily lift its ban on approving exports of “dual-use items” related to gallium, germanium, antimony, and super-hard materials to the US. The suspension takes effect from Sunday until November 27, 2026.
- The latest measure followed a similar announcement on Friday, when China suspended additional export controls imposed in October on some rare earth metals and lithium battery components.
- The University of Michigan (UoM) revealed on Friday that the Consumer Sentiment Index eased to 50.3 in November, the lowest level since June 2022, from a final reading of 53.6 in October. This figure came in weaker than the expectation of 53.2.
- Markets now see nearly a 66% possibility of a 25 basis points (bps) rate cut in December, according to the CME FedWatch tool.
Gold’s bullish tone intact above the key 100-day EMA
Gold price trades in positive territory on the day. According to the daily chart, the positive outlook of the precious metal remains in play as the price holds above the key 100-day Exponential Moving Average. The path of least resistance is to the upside, with the 14-day Relative Strength Index (RSI) standing above the midline near 55.0. This displays the bullish momentum for the yellow metal in the near term.
Sustained trading above the October 22 high of $4,161 could send the yellow metal toward the $4,200 psychological level. Further north, the next hurdle to watch is the upper boundary of the Bollinger Band at $4,325.
If we start seeing bearish candlesticks and consistent trading below $4,000, that could signal that sellers are back in control. In that case, XAU/USD might return to the lower limit of the Bollinger Band of $3,835, followed by the 100-day EMA of $3,705.
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.