Gold (XAUUSD) Price Forecast: Gold Rally Tests $4000 as Shutdown Deepens, Fed Flies Blind

Gold Breaks Records as Fed Cut Bets Climb, Shutdown Clouds the Outlook

Spot gold pierced through $3879.64 early Wednesday and tagged an intraday high of $3895.50, a hair away from the psychological $4000 mark. The rally came on the back of a U.S. government shutdown and increasing conviction that the Federal Reserve will cut rates at the end of the month.

With gold sitting in record territory, resistance is more about psychology than chart lines, and traders are watching closing reversal patterns closely. More than upside targets, yesterday’s close at $3858.45 is the price to watch for near-term momentum.

At 11:12 GMT, XAU/USD is trading $3884.40, up $25.95 or +0.67%.

Government Shutdown: A Bigger Deal This Time?

This isn’t your typical D.C. drama. The current shutdown isn’t just about missed paychecks—it’s threatening to alter the macro backdrop. Nearly 750,000 federal workers face furloughs, and there’s a real possibility of permanent layoffs through Reduction in Force protocols.

Consumer spending, already 70% of U.S. GDP, is at risk. Retailers banking on holiday momentum could be in for a rude awakening if federal households hold back on big-ticket items like cars and travel.

Moody’s sees a 0.1-point drag on GDP for each week of the shutdown. That might sound minor, but if this drags beyond two weeks, traders are staring down meaningful economic deterioration—and that stacks up fast in an already softening economy.

Fed Flying Blind Without Jobs or CPI Data

Thanks to the shutdown, September’s nonfarm payrolls and CPI data are already off the board. When the Fed meets on October 29, they’ll be missing their two most critical data inputs. That likely ties Powell’s hands. Instead of reacting to data, they’ll be flying blind—and traders are now leaning into bets that the Fed plays it safe and delivers a cut. The CME FedWatch Tool is already pricing a 95% chance of a cut.

Curve flatteners and repricing across the belly of the curve are in play, especially with the 10-year yield holding steady at 4.15% and the 2-year at 3.60%. There’s still some grind higher in yields, but gold’s reaction suggests the market is trading forward, not present.

Dollar Weakness Gives Gold an Extra Tailwind

The dollar index slid 0.2% to its lowest level in over a week, giving gold a further push. With the greenback under pressure due to shutdown noise and dovish Fed expectations, overseas demand for gold is getting a boost. Traders watching DXY closely see any prolonged fiscal impasse as an added weight.

Meanwhile, the JOLTS report showed softer labor market data, reinforcing the view that the Fed can ease without risking overheating. Unless the shutdown is resolved quickly, the dollar could stay on the back foot—supportive for gold near-term.

Outlook: Range Expansion or Reversal?

With gold in blue-sky territory, there’s no ceiling—but plenty of traps. A daily close below $3858.45 would be the first sign the rally’s out of gas. Watch for any rejection candles near $4000 and potential downside back toward $3717.52, the nearest swing low.

More likely than not, as long as shutdown risks linger and the Fed stays cornered by missing data, gold should remain well-bid. But at these highs, traders need to watch price action, not just headlines.

More Information in our Economic Calendar.