Gold (XAU/USD) sticks to a positive bias for the second straight day on Tuesday, though it lacks follow-through and remains below the $4,000 psychological mark heading into the European session. Investors now seem concerned that a prolonged US government shutdown could affect the economic performance. This, in turn, caps the recent US Dollar (USD) rally to its highest level since late May and acts as a tailwind for the commodity. Apart from this, persistent geopolitical uncertainties turn out to be another factor supporting the safe-haven precious metal.
Meanwhile, the latest optimism over easing US-China trade tensions remains supportive of a generally positive risk tone and is holding back the XAU/USD bulls from placing aggressive bets. Furthermore, the US Federal Reserve’s (Fed) hawkish tilt helps limit deeper USD losses and contributes to capping the non-yielding Gold. Hence, it will be prudent to wait for strong follow-through buying before confirming that the recent corrective decline from the record high touched in October has run its course and positioning for any meaningful upside for the commodity.
Daily Digest Market Movers: Gold bulls seem non-committed amid Fed’s hawkish tilt, trade optimism
- The US government shutdown entered its sixth week on Wednesday, becoming the longest in history and surpassing the 35-day record set during President Donald Trump’s first term. Economists now seem worried that a prolonged government closure would affect the economic performance.
- The nonpartisan Congressional Budget Office estimated the government shutdown could slice between 1.0 and 2.0% off Gross Domestic Product in the fourth quarter. This caps the recent US Dollar rally to its highest level since late May and supports the safe-haven Gold for the second straight day.
- Russian President Vladimir Putin has ordered preparations for nuclear testing after Trump said last week that the US would be running tests. Moreover, Russia has intensified its offensive and launched coordinated artillery strikes across eastern Ukraine, further benefiting the bullion.
- Automatic Data Processing reported that private sector employment in the US rose by 42K in October, against 25K estimated and a 29K decrease recorded in the previous month. Separately, the Institute for Supply Management’s (ISM) Non-Manufacturing Purchasing Managers’ Index rose to an eight-month high.
- Traders scaled back their bets for another 25-basis-point rate cut in December following the US Federal Reserve’s hawkish tilt last week. This could limit any meaningful USD corrective decline and keep a lid on a further appreciation for the non-yielding yellow metal, warranting some caution for bulls.
- Traders look forward to speeches from influential FOMC members later during the North American session for cues about the future rate-cut path. This will play a key role in driving the USD demand, which, along with the broader risk sentiment, should provide some impetus to the XAU/USD pair.
- On the trade-related front, China said on Wednesday that it would extend a suspension of additional tariffs on US goods for one year, making official an agreement reached in talks between Presidents Xi Jinping and Donald Trump last week.
Gold could accelerate positive momentum once the $3,990-3,995 confluence hurdle is cleared
The commodity is currently placed near the $3,990-3,995 confluence hurdle – comprising a short-term descending trend-line extending from last Friday and the 200-hour Simple Moving Average (SMA). A convincing breakout through the said barrier could trigger a short-covering move towards the $4,025-4,030 horizontal resistance. Some follow-through buying beyond the $4,040-4,045 region might shift the near-term bias back in favour of the XAU/USD bulls and pave the way for a move towards reclaiming the $4,100 mark with some intermediate hurdle near the $4,075 area.
On the flip side, weakness below the $3,972-3,970 immediate support might continue to attract some dip-buyers, which should help limit the downside for the Gold near the $3,940-3,935 region. The next relevant support is pegged near the $3,910-3,900 region and last week’s swing low, around the $3,886 zone. Failure to defend the said support levels would be seen as a fresh trigger for bearish traders and set the stage for the resumption of the recent corrective decline from the all-time peak.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.