Gold is stealing the spotlight again. On Tuesday, soared to a fresh record of $3895.22, captivating traders amid heightened fears of a U.S. government shutdown and mounting speculation about further interest rate cuts by the Federal Reserve. This dramatic rally, however, finds itself at a crossroads: the precious metal has slammed into a key supply zone, setting the stage for a possible selling frenzy tonight as Congress races against a midnight deadline to prevent a federal shutdown.
A recent Republican-backed spending bill cleared the House of Representatives but faces opposition in the Senate. Republicans hold a 53-seat majority, but need at least 60 votes to pass the bill.
Gold futures could see a sharp reversal as they trade just below a key resistance level at $3895.66, where large bears might initiate fresh shorts with a stop loss at $3990. This marks the end of the panic buying that pushed gold lower, as it has lost its safe-haven status after breaching the supply zone.
Despite growing expectations for more rate cuts, Federal Reserve Chair Jerome Powell emphasized last Tuesday that there is “no risk-free path” for policy, warning against cutting too quickly or too slowly. Meanwhile, most global central banks are shifting focus toward supporting global growth, a main concern.
Government shutdowns often disrupt U.S. economic activity and could threaten growth. A shutdown this week might delay the release of September’s nonfarm payrolls data scheduled for Friday. The White House has warned that thousands of government jobs could be cut, which could weaken the labor market further.
I expect the U.S. government to act quickly to prevent this situation from worsening. If the shutdown is averted tonight, gold futures might reverse sharply upward.
The movement of gold futures will likely determine the next trend by evening, depending on whether the shutdown can be avoided. Hope remains if further news indicates progress today, but failure could trigger a wave of selling in gold futures.
Disclaimer: Readers are advised to take any position in gold at their own risk, as this analysis is based only on observations.
