Gold prices affecting short-term savings yields, signals of increased volatility as it recovers to $4,200

Gold Spot Price Rebound, Focus on Resistance Breakout

During Friday’s Asian trading hours, gold spot(XAU/USD) regained the $4,200 level. After reaching a three-week high the previous day, it experienced a short-term correction, but buying interest at lower levels helped it regain upward momentum. From a technical perspective, this rally is significant. Breaking through the clear horizontal resistance at $4,150 last week and reaching $4,200 suggests that the bullish momentum remains intact.

It is also important that major oscillator indicators on daily and 4-hour charts continue to trend upward. If the current trend persists, the next key level to watch is around the previous swing high of $4,145. A clear break above this level could lead to resistance at $4,245, and surpassing that could make the psychological resistance at $4,300 a realistic target.

Simultaneous Weakening of the Dollar and Safe-Haven Preference

The key driver behind the rebound in gold prices is the dollar’s retreat to a two-week low. Concerns over prolonged U.S. government shutdown weakening economic momentum have increased, leading to a growing perception that the Fed may cut interest rates further. The dollar continues to weaken in response to these rate cut expectations, which enhances the purchasing power of dollar-denominated assets like gold.

At the same time, risk aversion is intensifying across risk assets, especially in the stock markets. As global equities remain subdued, investors are gradually increasing their holdings in safe assets like gold during their portfolio adjustments. This trend is also a positive signal for conservative asset managers expecting short-term yield improvements.

‘Data Gap’ Issue After the Government Shutdown

As the shutdown ends, market focus shifts to the ‘damaged economic data.’ Experts believe that the delayed release of key macroeconomic indicators during the shutdown could reveal economic weaknesses. Economists estimate that the prolonged government shutdown may have already shaved off about 1.5–2.0 percentage points from quarterly GDP growth.

What is more concerning is that some key economic indicators may not be released at all. The White House’s mention that October employment and inflation data might be unavailable due to data collection disruptions supports this view. This information gap is putting pressure on Fed officials to adopt a cautious stance on additional easing.

Growing Caution Among Fed Officials

Minneapolis Fed President Neil Kashkari recently stated that inflation remains high and that economic outlooks are mixed. Boston Fed President Susan Collins also indicated that, given the information restrictions caused by the government shutdown, the Fed should be cautious about implementing further easing. These comments suggest that the Fed is likely to proceed cautiously within limited data, rather than quickly shifting to aggressive easing.

As a result, market expectations for a rate cut in December have somewhat diminished. However, according to the CME FedWatch Tool, the market still prices in about a 50% chance of a 25 basis point rate cut at the December meeting. The probability of a rate cut by the January meeting exceeds 75%. In other words, while the immediate December cut expectations have decreased, the medium-term easing scenario remains alive.

The Appeal of Zero-Yield Assets

This environment is favorable for zero-yield assets like gold. Whenever Fed officials’ comments hint at rate cuts, market attention is likely to increase. This directly impacts dollar demand and volatility, which are key factors influencing gold price direction.

Correction Scenarios and Technical Support Levels

Conversely, it is important to identify defensive levels in case of a correction. The previous swing low of $4,145 is expected to serve as a short-term support level. If this level is broken, the price could fall toward $4,100, and further selling could test the support at $4,075. Continued downtrend may expose the intermediate support at $4,025, and in an extreme scenario, test the psychological level of $4,000.

Particularly, the $4,000 level holds more than just numerical significance. A clear breakdown below this level could shift the market’s short-term supply-demand balance from favoring buyers to favoring sellers, potentially turning the market into a more pronounced ‘downward bias.’

Current Market Strategy

Based on the current fundamental and technical outlook, investors are monitoring movements between the support at $4,000 and resistance at $4,245, seeking buying opportunities during corrections. Conservative investors considering short-term yield improvements should pay close attention to gold’s future direction as a safe asset.