Gold rises to record high above $3,800 on growing risk of US government shutdown
- Gold price drifts higher to a fresh all-time high in Monday’s early European session.
- The possible US government shutdown boosts the safe-haven flows, benefiting the Gold price.
- Traders await the Fedspeak later on Monday for fresh impetus.
The Gold price (XAU/USD) extends its upside to a record high above the $3,800 psychological level during the Asian session on Monday. The precious metal edges higher as the US government risks a shutdown. Furthermore, the US inflation data came in line with expectations, reinforcing bets that the US Federal Reserve (Fed) may continue with interest rate cuts later this year. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Traders will keep an eye on the Fedspeak later on Monday. Fed Governor Christopher Waller, Cleveland Fed President Beth Hammack, St. Louis Fed President Alberto Musalem, New York Fed President John Williams and Atlanta Fed President Raphael Bostic are set to speak. Any hawkish comments from Fed officials might lift the US Dollar (USD) and undermine the USD-denominated commodity price.
Daily Digest Market Movers: Gold edges higher amid US government shutdown risks
- US President Donald Trump will meet with the top four congressional leaders at the White House on Monday as the deadline for a possible government shutdown looms. Without funding legislation, parts of the government would close on Wednesday, the first day of the US government’s 2026 fiscal year.
- US inflation, as measured by the US Personal Consumption Expenditures (PCE) Price Index, rose to 2.7% year-on-year in August from 2.6% in July, the US Bureau of Economic Analysis reported Friday. This figure came in line with the market consensus.
- The core PCE Price Index, which excludes volatile food and energy prices, rose 2.9% year-over-year in August, matching the increase in July and analysts’ estimates.
- On a monthly basis, the PCE and the core PCE increased 0.3% and 0.2%, respectively.
- “Monthly PCE data is in line, though personal income and spending were a tenth above expectations. Nothing from this data will prevent the Fed from carrying on with another cautious rate cut at the October meeting,” said Tai Wong, an independent metals trader.
- Markets are now pricing in nearly an 88% odds of a Fed rate cut in October and a 65% possibility of another reduction in December, according to the CME FedWatch Tool.
Gold’s positive view remains in place, but overbought RSI warrants caution for bulls
Gold price trades in positive territory on the day. The bullish tone of the precious metal remains intact in the longer term, with the price holding above the key 100-day Exponential Moving Average (EMA) on the daily chart. Nonetheless, the 14-day Relative Strength Index (RSI) stands above the midline near 75.90, indicating the overbought RSI condition. This suggests that further consolidation or a temporary sell-off cannot be ruled out before positioning for any near-term Gold upleg.
The crucial resistance level for XAU/USD is seen in the $3,800-$3,810 zone, representing the psychological level and the upper boundary of the Bollinger Band. Sustained trading above this level could take the yellow metal to $3,850.
On the downside, the initial support level for Gold is located at $3,722, the low of September 25. Red candlesticks closing below the mentioned level could expose $3,632, the low of September 19.
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.