Dollar Slumps as Shutdown Fears Lift Gold to Record Highs

Key Takeaways:

*The U.S. Dollar Index stayed under pressure as Washington’s funding standoff raised the risk of a government shutdown and suspension of key data releases.

*Dovish Fed commentary and easing geopolitical tensions have eroded the dollar’s safe-haven bid, leaving downside risks dominant.

*Gold surged to fresh record highs above $3,850, fueled by safe-haven flows, falling real yields, and tightening physical supply, keeping the rally firmly supported.

Market Summary:

The U.S. Dollar Index (DXY) remained under pressure as investors grappled with a high-stakes funding standoff in Washington that threatens to trigger a government shutdown. Markets are increasingly bracing for the suspension of key economic releases from the Bureau of Labor Statistics, including the September nonfarm payrolls report, which would leave the Federal Reserve without vital data to guide its October and December meetings. This potential data blackout has intensified expectations for precautionary easing, with futures now pricing a 90% probability of a rate cut as soon as October.

Recent commentary from Fed officials has reinforced the dovish bias. Policymakers acknowledged that while inflation remains above target, tariffs have contributed only marginally to price pressures and fragility is emerging in labor market data. The combination of muted inflation risks and softening job signals has underpinned bets that the Fed will err on the side of caution. At the same time, geopolitical de-escalation—marked by progress toward a Gaza peace deal—has eroded the greenback’s safe-haven appeal, adding another layer of downward pressure.

Gold has been the chief beneficiary of these dynamics, blasting through the $3,850 per ounce level to reach new record highs. The looming government shutdown has triggered powerful safe-haven flows, while falling real yields and elevated expectations for Fed rate cuts have supercharged the metal’s rally. Beyond the macro backdrop, structural demand from central banks and resurgent ETF inflows is providing a consistent bid, while soaring lease rates across the precious metals complex underscore tightening physical supply.

With political brinkmanship in Washington unresolved and the Fed potentially navigating in the dark, the path of least resistance for the dollar remains lower, while gold’s rally appears firmly underpinned. Unless lawmakers strike a deal swiftly and economic data flow resumes, the interplay of fiscal dysfunction, monetary easing expectations, and physical scarcity is likely to keep gold well supported and the greenback under sustained pressure.

Technical Analysis

DXY, H4

The US Dollar Index (DXY) recently broke above a descending trendline, reclaiming the 98.00 level before easing back slightly. This breakout marks a shift in near-term sentiment, with buyers regaining momentum after weeks of sideways-to-lower price action. The 97.55–98.10 zone now acts as an important support area, and holding above it will be pivotal in confirming the strength of the breakout.

Price action shows the index consolidating after its sharp rally, with upside capped near 98.75 resistance. A decisive push through this barrier would open the way toward 99.60, while failure to extend higher could invite a pullback back toward 97.55.

Momentum signals lean cautiously constructive. The RSI has cooled from overbought levels, settling around 50, suggesting a pause rather than a reversal. Meanwhile, the MACD remains in positive territory, though momentum has slowed, signaling that bulls may need fresh catalysts to extend gains.

Resistance levels: 98.10, 98.75
Support levels: 97.55, 97.00

XAUUSD, H4

Gold (XAU/USD) has extended its bullish run, surging past the $3,800 mark and reaching fresh highs near $3,838. The breakout above the $3,780 level reinforces the dominant uptrend, with price momentum strongly supported by the rising moving averages. Immediate support now rests at $3,780, followed by $3,735, with these zones likely to serve as key floors if any corrective dip occurs.

Price action reflects a stretched but resilient rally, with bulls firmly in control as long as the metal holds above $3,780. A sustained move beyond $3,838 would expose the next psychological milestone at $3,900, whereas failure to extend higher may trigger a short-term pullback toward $3,780 or deeper into the $3,735 region.

Momentum signals remain constructive but cautionary. The RSI has pushed above 70, indicating overbought conditions that may limit near-term upside. Meanwhile, the MACD remains in bullish territory, though a bearish divergence has emerged, hinting at fading momentum despite higher prices.

Resistance levels: 3900.00, 3960.00
Support levels: 3780.00, 3735.00