The price of gold (XAU/USD) dipped below $4,100 in early Asian trading hours on Thursday. The precious metal has faced a sharp sell-off in previous sessions on easing tensions between the United States (US) and China. Traders are also booking profits ahead of key US inflation numbers expected on Friday. In addition, analysts believe that the end of the Diwali festival in India, the world’s second-largest gold consumer, could reduce physical demand and drag down the price.
On the other hand, the ongoing US government shutdown and geopolitical tensions could boost the price of gold as it is viewed as a safe haven in times of uncertainty. Speculation about further interest rate cuts from the Federal Reserve (Fed) may support the yellow metal. Lower interest rates can reduce the opportunity cost of holding gold, supporting the non-yielding precious metal.
Traders will closely monitor developments in the US-China trade talks as their trade representatives are scheduled to meet later this week ahead of a planned meeting between Chinese leader Xi Jinping and US President Donald Trump next week.
The release of the US Consumer Price Index (CPI) in the US will be in the spotlight later on Friday due to the government shutdown-driven data drought. If the report shows a warmer-than-expected result, this could lift the US dollar (USD) and weigh on the USD-denominated commodity price in the short term.
Daily Digest Market Movers: Gold extends decline as traders continue to book profits
- Gold experienced historic gains in 2025, rising more than 50%, surpassing previous periods of volatility such as after the 9/11 attacks, the 2008 financial crisis or even the Covid-19 pandemic.
- The US government shutdown has entered its fourth week with no resolution in sight. The Senate is expected to vote again on a funding bill, though it is likely to fail. This marks the second longest government shutdown in US history.
- US President Donald Trump said late Wednesday that a long meeting with China’s Xi Jinping is planned in South Korea and he believes something will work out.
- “The sell-off appears to be largely technical, with profit-taking following an extended period of overbought conditions since September. Despite the pullback, bullion is still up about 55% this year, and the long-term primary uptrend remains firmly intact,” said Russell Shor, senior market analyst at tradu.com.
- Fed funds futures imply a 97% chance of a 25bps rate cut, according to LSEG data.
Gold maintains the longer-term bullish vibe above the key EMA
The gold price is trading in negative territory on the day. According to the daily chart, the constructive outlook prevails for the precious metal and the price is well supported above the key 100-day exponential moving average. The upward momentum is reinforced by the 14-day Relative Strength Index (RSI), which stands above the midline near 57.25.
The immediate resistance level to watch is $4,140, ​​the October 15 high. If buyers step in, Gold could invite fresh bullish momentum towards $4,330, the October 16 high. The next obstacle is seen at the upper limit of the Bollinger Band at $4,365.
On the downside, the crucial support level for XAU/USD is seen at the psychological level of 4,000. More bearish candles and sustained action below the October 10 low of $3,947 could set the stage for a downward move that takes the price to $3,838, the October 3 low.
Frequently asked questions about gold
Gold has played a key role in human history, as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and against falling currencies, as it is not dependent on any specific issuer or government.
Central banks are the biggest gold owners. 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 currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US Treasuries, both of which are major reserve and safe-haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends 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 cause the price of gold to escalate due to its safe haven status. As a non-yielding asset, gold tends to rise with lower interest rates, while higher money costs usually weigh 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 under control, while a weaker dollar is likely to push up gold prices.