Gold Prices May Return to New All-Time Highs

Approaching the End of the U.S. Government Shutdown

Members of the U.S. House of Representatives are getting ready to vote on ending the government shutdown, which has lasted for more than 40 days, after the Senate approved a temporary funding plan extending through the end of January for some agencies and through the end of September for others. This development comes amid growing flight delays and frustration among federal employees whose salaries have been delayed for over a month. The agreement was reached after Democrats secured a commitment from Republicans to extend the healthcare coverage system enacted during former President Obama’s administration.

One of the most significant outcomes of this legislation, once enacted and signed by President Trump, is the quick return of federal employees and air-traffic controllers to their jobs, along with the resumption of key U.S. economic data releases, including the monthly jobs report, which reveals the health of the labor market, as well as CPI and PCE inflation indicators.

U.S. Inflation Levels

Markets are waiting for Thursday’s release of the U.S. Consumer Price Index for October. The YoY core inflation (excluding food and energy) is expected to remain steady at 3%, while the YoY headline inflation is projected to rise slightly to 3.1%. Higher-than-expected inflation data may make Federal Reserve members more cautious about cutting interest rates in next year’s meetings. In contrast, stable or lower readings may encourage them to continue with the current pace of rate cuts until they reach neutral levels (rates that neither stimulate nor constrain the economy) estimated between 3.0% and 3.25%.

Continued rate cuts would push real interest rates lower (nominal rate minus inflation), reducing demand for U.S. Treasuries and weighing on the U.S. dollar. In turn, this typically boosts demand for gold and may support a rise in the precious metal’s price.

Gold Prices – Technical Analysis

At the end of October, gold prices corrected their upward trend and began moving sideways, forming a lower high with a higher low. At the start of this week, gold broke above $4,100/oz and closed at the highest level of the day, signaling that bullish traders may be regaining control. Under this scenario, gold may be heading toward $4,500/oz. Resistance levels to watch include the October 20 high at $4,381 as well as the psychological level at $4,400.

Levels to Watch in the Opposite Scenario

A daily close below $3,900/oz would indicate continued hesitation among traders to push prices higher, potentially allowing bearish momentum to take over and send prices toward $3,675. In this scenario, the psychological support level at $3,800 should be closely monitored.

Gold – Daily Price Chart

Chart Source: ADSS Platform