- Gold is making a comeback, recently nearing record highs, just shy of the $3,900 mark.
- The ongoing US government shutdown and unsettling labor statistics have weakened the US dollar and increased interest in safe-haven assets like gold.
- A technical analysis indicates bearish divergence on the 4-hour chart for gold.
In the wake of the US federal government shutdown, there’s been a noticeable uptick in demand for precious metals as of Wednesday. Gold (XAU/USD) rebounded from a dip below $3,800 during the European trading hours, hitting a new peak of over $3,890.
The metal is benefiting from a weaker US dollar, especially in light of the government closures and data deficiencies. This year, we’ve had our fingers crossed for further reductions in Federal Reserve rates.
Bearish Divergence in Technical Indicators
While the fundamental drivers continue to keep gold expensive, technical analysis shows bearish divergence in the RSI on the 4-hour chart.
On the flip side, the 161.8% Fibonacci extension from the bull run that occurred between September 19-23 is currently sitting at $3,895, which seems to be providing some support for bullish momentum. Additionally, there’s a psychological pull towards the $4,000 mark. The 261.8% Fibonacci extension of that bullish cycle is pegged at $4,064.
Gold Insights
Gold has always held significant value throughout history as a means of exchange. Beyond its visual appeal, it’s widely recognized as a safe-haven asset. When times get tough, many consider it a solid investment. It often acts as a hedge against inflation, largely because its worth doesn’t rely on any specific issuer or government.
Central banks are the largest accumulators of gold. They typically buy gold to diversify their reserves and bolster confidence in their economy and currency during uncertain times. As of 2022, central banks added around 1,136 tonnes to their reserves, valued at about $70 billion, marking the highest purchase level since records began. Countries like China, India, and Türkiye are ramping up their gold holdings.
Gold has an inverse relationship with the US dollar and Treasury securities, both regarded as safe havens. When the dollar weakens, gold prices generally rise, enabling investors to diversify their assets amidst volatility. Furthermore, gold tends to react inversely to risk assets; while surges in the stock market can put downward pressure on gold, a downturn in riskier markets usually benefits precious metals.
Various factors influence gold prices. Concerns over geopolitical instability or potential recessions can lead to rapid price increases for gold due to its safe-haven status. Since gold doesn’t yield returns, lower interest rates typically drive its prices up, whereas higher rates can dampen them. However, price movements mainly depend on the behavior of the US dollar, as gold values are denominated in dollars (XAU/USD). A strong dollar often keeps gold prices subdued, while a weak dollar can elevate them.
