XAU/USD — Analysis and Forecast

[Ben Graham]

The partial shutdown of the U.S. federal government has entered its third week, with no signs of resolution in sight. A Senate vote on the Republican-backed stopgap funding bill once again failed to gain the necessary number of votes on Wednesday — marking the ninth rejection of such an initiative.

Investors are increasingly concerned about how a prolonged government shutdown might affect the nation's economic momentum. A Treasury Department spokesperson stated that another shutdown could cost the U.S. economy around $15 billion per week, contradicting earlier comments from Secretary Scott Bessent, who had downplayed the potential economic impact.

On the international front, trade tensions between the U.S. and China have escalated further: both sides imposed mutual port tariffs, aggravating the already tense situation. Additionally, Donald Trump announced the possible ban on imports of vegetable oil from China as retaliation for Beijing's refusal to purchase U.S. soybeans. He also declared that, in his view, the U.S. is currently in a state of "total trade war" with China, further fueling market instability.

Meanwhile, U.S. Treasury Secretary Scott Bessent proposed a three-month suspension of the tariffs previously imposed on Chinese goods, on the condition that China abandons its plans for tight control over rare earth element exports. This step could help ease trade tensions, though no final decision has yet been made.

On the geopolitical front, U.S. Defense Secretary Pete Hegseth warned Russia of possible consequences should it continue to escalate geopolitical tensions in Ukraine. At the same time, President Trump mentioned the possibility of supplying long-range Tomahawk cruise missiles to Ukraine, further raising the level of regional tension.

In the macroeconomic spotlight, Federal Reserve Chair Jerome Powell noted on Tuesday that the labor market is likely to remain characterized by low employment levels and weak productivity. This comment strengthened market expectations for a 25-basis-point rate cut by the Federal Reserve at both the October and December meetings.

The U.S. dollar has been declining for the third consecutive day, reaching its lowest level in more than a week — a development that supports the continued rise in gold prices and reinforces expectations of further strengthening of the precious metal in the near term.

From a technical standpoint, oscillators on the daily chart are currently in overbought territory. Nevertheless, this has not prevented gold from climbing higher each day, continuously setting new all-time highs, as fundamental drivers and global geopolitical tensions remain stronger than the technical picture.

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