FX.co ★ XAU/USD, GOLD

The price of gold (XAU/USD) has retraced about half of its recent gains amid heightened volatility across commodity and financial markets. It had reached a weekly high of $4,120 per ounce before pulling back. Meanwhile, silver prices remained largely stable, platinum and palladium saw slight gains, and copper prices fell—reflecting a broader risk-averse sentiment in global markets. The primary driver for this reversal was a heavy sell-off in semiconductor and technology stocks on Thursday; investors expressed concerns regarding potential regulatory and legislative frameworks for the artificial intelligence sector, fueled by fears that a Democratic-controlled Congress might impact the industry. Faced with mounting losses in the stock market, institutional investors began liquidating their gold holdings to reduce overall portfolio leverage and increase necessary liquidity. This sharp reversal stands in stark contrast to earlier price action: spot gold was trading at approximately $3,942 on Wednesday morning before surging more than 3% in a single day—its largest daily gain since August—and approaching $4,140 during Thursday’s Asian trading session. The initial rally was driven by market expectations that a "divided government"—where different parties control the executive and legislative branches—would curb federal spending, limit the expansion of the deficit, and potentially facilitate a resolution to the conflict with Iran, thereby easing inflation fueled by high energy prices. However, this macroeconomic landscape exerts a dual and contradictory influence on precious metals. On one hand, easing inflationary pressures and a reduction in interest-rate-related strains enhance the appeal of non-yielding assets like gold. On the other hand, the theoretical limitation on fiscal expansion removes a key driver of gold demand: its role as a hedge against unrestrained government spending and rising national debt. Furthermore, the sharp rebound in the U.S. dollar has posed a significant headwind for gold’s recovery. As a dollar-denominated asset, gold has faced intense downward pressure. The U.S. Dollar Index (DXY) staged a strong recovery on Thursday and extended its gains on Friday; notably, while the dollar was the weakest-performing G10 currency on Wednesday, it subsequently strengthened against all other currencies in the group. A rising dollar benefits cash and fixed-income investors, but it places substantial pressure on leveraged investors holding gold positions—forcing them to liquidate those holdings to meet margin requirements and cover losses in their portfolios. The critical question now preoccupying market participants is: why has the current downturn in the stock market failed to trigger the typical surge in demand for gold as a safe-haven asset? The answer lies primarily in interest rate expectations: financial markets continue to price in the possibility of Federal Reserve rate hikes in December and March, while high energy prices are fueling expectations of elevated inflation. This pattern mirrors events from the past two weeks; during the stock market downturns on October 22–23 and October 30, gold faced heavy selling as investors liquidated their positions. In these instances, gold did not function as a "safe-haven asset," but rather as a temporary source of market liquidity used to offset losses in the technology sector. Looking ahead, gold’s near-term performance will depend on the release of key economic data—most notably the upcoming U.S. non-farm payrolls report. The market generally anticipates the addition of 65,000 new jobs (compared to 29,000 in September). Should the actual figure fall short of expectations, it could exert downward pressure on the U.S. dollar and dampen prospects for a Federal Reserve rate hike, thereby providing fundamental support for a recovery in gold prices. From a technical perspective, buyers must break through the immediate resistance level of $4,060 to regain short-term control. A successful breakout above this level could lead gold to retest the $4,124 mark; however, any further gains are likely to encounter strong selling pressure, with a broader technical target set at $4,192. Conversely, sellers are attempting to breach the key psychological support level of $4,000. A decisive break below this level would severely damage the bullish market structure, potentially pushing gold prices down to $3,954, or even extending the decline to $3,906.