Gold prices rebound to $4,200, safe-haven asset demand rises amid a weak dollar and concerns over economic slowdown

The gold market has entered a rebound phase. The spot gold price(XAU/USD) reached a high not seen in three weeks earlier this week and, despite a correction, recovered the $4,200 level, reigniting the upward trend. The background for this rally includes a combination of factors such as the prolonged U.S. government shutdown weakening economic momentum and a softening dollar.

Risk aversion sentiment strengthens, capital shifts to safe assets like gold and short-term deposits

Investor sentiment is notably shifting. As the U.S. government shutdown prolongs, concerns about economic slowdown are growing, leading to an accelerated move away from risky assets like stocks. Amid overall weakness in global stock markets, investors are actively reallocating their portfolios into safe assets with guaranteed returns, such as gold and short-term deposits.

A weakening dollar also plays a key role in driving gold prices higher. Currently, the dollar index remains near a two-week low. This reflects market expectations of increased likelihood of additional rate cuts due to economic weakening, which enhances the relative attractiveness of non-yielding assets like gold.

FOMC cautious stance, some retreat in December rate cut expectations

However, behind the positive signals, policy uncertainty persists. Several senior Fed officials, including Neil Kashkari of the Minneapolis Fed and Susan Collins of the Boston Fed, have repeatedly expressed cautious views on further rate cuts. They emphasize avoiding hasty policy decisions in the current environment, citing the economic data gap caused by the government shutdown.

The absence or partial release of key macroeconomic indicators such as October employment figures and inflation data complicates the Fed’s decision-making. As a result, market expectations for a December rate cut have fallen to about 50%. Nonetheless, according to CME Group’s FedWatch tool, the probability of additional cuts by January next year remains above 75%, suggesting that the easing cycle is likely to continue in the medium term.

Economic impact of government shutdown as a rationale for rate cuts

Economists’ assessments support the view of an economic slowdown. It is widely believed that the prolonged government shutdown may have shaved off approximately 1.5 to 2.0 percentage points from quarterly GDP growth. Coupled with signals of weakening labor markets, the Fed is increasingly likely to implement additional easing measures.

This creates a cyclical environment that sustains dollar weakness and supports gold prices. The preference for defensive assets like short-term deposits and gold among investors is rooted in this dynamic.

( Technical outlook: intersection of resistance and support levels

From a technical perspective, gold is sending clear signals. Breaking above the horizontal resistance at $4,150 and reaching back to $4,200 suggests further upward momentum.

In an upward scenario, the first target is the previous swing high at $4,145. A decisive break above this level could lead to resistance at $4,245. If this level is surpassed, attention may shift to the psychological resistance at $4,300.

In a downward scenario, $4,145 acts as the first support. A decline below this level could test support levels at $4,100, $4,075, and $4,025 sequentially. The final support at $4,000 is a critical juncture, indicating a shift from buying to selling dominance beyond just a price level.

) Investment strategy: securing profits from short-term deposits and the relationship with gold price trends

Currently, a trading range between $4,000 and $4,245 is likely to form. Investors should look for buying opportunities at lower prices during corrections while considering the relative attractiveness of gold and short-term deposits in the context of the ongoing easing cycle.

Until policy signals become clearer, market participants are prioritizing monitoring Fed officials’ statements and economic data release schedules to adjust their positions accordingly. Gold is expected to maintain its status as the most reliable safe haven asset during economic slowdown.