XAU/USD. Analysis and Forecast

[Ben Graham]

Gold continues to rise, as mounting economic challenges fuel market expectations of Federal Reserve interest rate cuts. At the same time, the U.S. dollar is struggling to attract new buyers due to pessimistic Fed policy expectations and fears of slower economic growth caused by the prolonged U.S. government shutdown. These factors remain key drivers, supporting demand for the yellow metal, which is traditionally viewed as a safe-haven asset during periods of uncertainty.

Meanwhile, the gradual reopening of the U.S. government is helping to improve risk sentiment, which may reduce traders' appetite for aggressive gold purchases, since gold is generally considered a defensive asset. Nevertheless, the fundamentals continue to suggest that the path of least resistance for XAU/USD remains upward. Therefore, any corrective pullback can still be viewed as a buying opportunity.

The resumption of U.S. government operations has refocused market attention on worrisome budget prospects and the potential for slower economic growth. Analysts estimate that the prolonged shutdown could have reduced quarterly GDP growth by about 1.5–2%. The resumption of normal economic data releases is likely to reinforce these concerns, especially after last week's weak employment and consumer sentiment reports.

In addition, markets continue to assess the likelihood of a Fed rate cut next month. Research by Revelio Labs, a firm specializing in labor market analytics, showed that about 9,100 jobs were lost in October, while public sector employment declined by 22,200. Furthermore, according to estimates from the Federal Reserve Bank of Chicago, the unemployment rate rose slightly last month, indicating a modest deterioration in labor market conditions.

These figures strengthened dovish sentiment among Fed members and led to a decline in the U.S. dollar on Tuesday, a scenario that gave gold additional upward momentum.

From a technical perspective, the XAU/USD pair has broken above the key psychological level of $4200, targeting the next resistance at $4240. On the other hand, the former resistance at $4150 now acts as immediate support. Oscillators remain positive, confirming that the path of least resistance is to the upside.

The material has been provided by InstaForex Company - www.instaforex.com