Authors: Sajjad Sheikhi and Sabah Novinfar
Why Isn’t Gold Stopping?
Recently, new political and economic risks have emerged worldwide from the government shutdown, with no apparent agreement yet between Republicans and Democrats and an uncertain duration, to the renewed escalation of trade tensions between China and the United States after a period of relative calm. These fresh risks have continued to keep gold on a bullish path.
U.S. Government Shutdown and Economic Uncertainty
The U.S. government shutdown has entered its second week, with both parties still firmly holding their positions. During this period, approximately 900,000 federal employees are on furlough, and former President Trump has threatened mass firings if the shutdown continues. While these statements appear primarily aimed at pressuring the Democrats, no progress has yet been made in Congress to end the shutdown. After the failure of the seventh attempt to resolve the issue, the U.S. Senate has been adjourned until Tuesday.
The main disagreement between the parties centers on healthcare subsidies removed from the budget bill. Democrats are demanding an extension of the health insurance tax credits within the budget and insist that this issue be resolved before the government reopens. Republicans, however, propose that negotiations over the budget details take place after the government resumes operations.
The government shutdown was also a record in the first round of the republican presidential administration ; in 2018 U.S. government was closed for 35 days , and now there are deep differences between the two parties . That is , most party disagreements are being pursued purely over budget details .
Amid the government shutdown, the postponement of key economic data is intensifying uncertainty. September employment data, scheduled for release on Friday, was delayed, and this week’s Consumer Price Index (CPI), Producer Price Index (PPI), and retail sales reports are also expected to be postponed. In this environment, market attention is shifting toward private sector indicators such as PMI, ADP reports, or data released by financial institutions.
Currently, private sector employment data provide a reasonably clear picture of the U.S. labor market. Goldman Sachs estimates that initial jobless claims for the week ending October 4 increased to 235,000, closely matching Bloomberg economists’ estimate of 233,000. These relatively low figures indicate that layoffs remain limited, although job seekers may still face delays in finding employment.
According to Bank of America estimates, job changes in September continued to decline. The bank uses internal banking account data to gauge labor market conditions and employment trends. While these estimates may show some volatility, a three month moving average indicates that job changes have slightly decreased. Bank of America’s estimates are even lower than the negative ADP data, highlighting ongoing softness in employment growth.
The chart above shows the three month moving average of annualized job changes as a percentage. Overall, these data align with official figures, although short term divergences exist. Therefore, while the Bank of America’s forecast of a sharp NFP decline may not be entirely accurate, in the absence of official employment data, it provides a helpful indication that labor market weakness is persisting.
The Federal Reserve is scheduled to hold a meeting at the end of October, and Central Bank decisions without complete data will be challenging. However, Mr. Waller, an influential Board member, noted that labor market weakness is evident and that it is not strictly necessary to rely on government data, as private sector indicators clearly reflect this ongoing trend.
Escalation of the U.S.-China Trade War
In the second half of the year, progress on trade agreements had temporarily eased tariff related risks. However, last Friday, former President Trump adopted a sharply aggressive stance toward China, threatening a 100% increase in tariffs starting in November. This announcement surprised markets and triggered strong risk aversion. Prior to the market opening, Trump commented: “Don’t worry about China, neither side wants their economy to enter a recession, so good things will happen.” This suggests that Trump’s position was more of a threat than an actionable plan, and a full 100% tariff hike is unlikely, as the U.S. is currently in a cycle of interest rate cuts and cannot absorb a new tariff shock.
On the other hand, China has taken a firm stance, showing no apparent willingness to back down. The central bank’s substantial gold purchases signal that China has been preparing for a trade conflict for some time. These developments indicate that the risk of an intensified trade war remains present.
Gold Technical Analysis; 1-Hour Time Frame
1-Hour Timeframe:
Gold prices continue to maintain their upward trend, with the first short term target around $4,100. Key support levels at $4,000 and $3,960 are highly significant and could help reinforce the bullish momentum.
15-Minute Timeframe:
After reclaiming the previous high, gold has begun a modest upward move that is likely to continue toward $4,100. Important support zones in this timeframe are $4,025 and $3,978, which may trigger temporary price increases.
Summary
Political and economic factors including the U.S. government shutdown, the ongoing trade war, uncertainty in China-U.S. negotiations, labor market weakness, and monetary policies remain the main drivers of gold demand. Some financial institutions, including Goldman Sachs, forecast gold targets in the $4,300-$4,900 range. Additionally, central bank purchases and expansionary monetary policies continue to support price growth.
However, traders entering long positions should carefully consider risk to reward ratios and monitor the short term market trend in relation to China-U.S. negotiations. In the medium term, gold still has strong fundamental reasons for growth, but the pace of price increases may slow, making proper capital management essential.