Gold (XAU/USD) continues its upward trend, reaching fresh three-week highs during the European session. Forecasts suggest that delayed US macro data may reveal economic weaknesses due to a prolonged government shutdown, possibly prompting the US Federal Reserve to lower interest rates in December. This scenario favours the rise of non-yielding gold.

A selling bias against the US Dollar also supports the gold price increase. Positive developments concerning the reopening of the US government may affect Gold slightly, but the overall sentiment remains bullish. The Senate’s decision to pass a funding bill lifts confidence but could restrain further aggressive buying of Gold.

Government Reopening and Economic Slowdowns

The reopening of the government draws attention to fiscal concerns and economic slowdowns. Analysts estimate the shutdown may have reduced GDP growth by 1.5 to 2.0%, keeping pressure on the US Dollar. Revelio Labs reported 9,100 job losses in October, and the Chicago Fed noted a rise in unemployment, suggesting labour market strain.

Traders expect a 60% probability of a Fed rate cut in December, impacting the Dollar. Atlanta Fed President Raphael Bostic commented on the job market’s balanced state, emphasising there might not be a severe downturn. Technical analysis shows the XAU/USD pair remains strong, with potential resistance at $4,250-$4,255. Conversely, a drop below $4,180 might offer buyers an opportunity.

Recently, the US Dollar has fluctuated against major currencies, showing the most change against the Japanese Yen. The heat map highlights these currency movements.

We are seeing gold prices push higher because of convictions that the recent US government shutdown has taken a toll on the economy. Delayed economic data is expected to confirm this weakness, with the latest weekly initial jobless claims already showing a concerning rise to 245,000, the highest in four months. This supports our view that the Federal Reserve will be forced to lower interest rates next month.

This economic softness reinforces the market’s belief that the Fed will cut rates by 0.25% in December, with current pricing showing a 60% probability. We saw a similar dynamic back in late 2023 when the Fed signaled a pivot, which fueled significant market rallies. However, not all Fed officials agree, with some like Atlanta Fed President Bostic suggesting the labor market is not in a severe downturn.

Derivative Traders and Strategic Approaches

For derivative traders, this suggests a bullish stance on gold is appropriate in the coming weeks. Buying call options with strike prices near the $4,250 level presents a strategy to capitalize on the expected upward momentum. This approach offers a way to profit if gold continues its rally toward that technical target.

Risk management remains crucial, and we see the $4,180 area as a potential buying opportunity on any dips. A decisive break below the more critical $4,100 support level would invalidate our bullish outlook and could trigger further selling. Traders could consider using put options with a strike below this level to hedge their long positions against an unexpected downturn.

The sustained weakness in the US Dollar is providing a significant tailwind for gold. The US Dollar Index (DXY) has recently fallen below the 103 level for the first time since August 2025, reflecting the growing expectations for a Fed rate cut. This inverse relationship makes gold more affordable for holders of other currencies, further boosting its appeal.

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