Gold hits fresh three-week low amid US-China trade optimism, ahead of Fed meeting

Gold (XAU/USD) selling remains unabated for the third successive day on Tuesday as signs of easing trade tensions between the US and China – the world's two largest economies – continue to undermine demand for traditional safe-haven assets. The intraday downfall to an over three-week low could further be attributed to technical selling following an intraday failure to find acceptance above the $4,000 psychological mark.

Meanwhile, dovish Federal Reserve (Fed) expectations drag the US Dollar (USD) lower for the second straight day, though it does little to lend any support to the non-yielding Gold. Even rising geopolitical tensions and economic risks stemming from a prolonged US government shutdown fail to provide any respite for the XAU/USD bulls. This backs the case for further losses as the focus shifts to a two-day FOMC meeting.

Daily Digest Market Movers: Gold plummets as trade optimism offsets dovish Fed and a weaker USD

• Expectations of further interest rate cuts by the US Federal Reserve keep the US Dollar depressed for the second straight day on Tuesday and assist the non-yielding Gold to stage a modest recovery from an over two-week low.
• According to the CME Group's FedWatch Tool, traders have fully priced in that the US central bank will lower borrowing costs by 25-basis-points at the end of a two-day meeting on Wednesday and cut rates again in December.
• The bets were reaffirmed by the latest US inflation figures released on Friday, which showed that the headline Consumer Price Index and the core gauge (excluding food and energy) increased by the 3% YoY rate in September.
• US President Donald Trump, in response to Russian President Vladimir Putin's announcement of a successful test of a new nuclear-powered cruise missile, warned that the US has a nuclear submarine off the coast of Russia.
• This keeps the risk of a further escalation of geopolitical tensions and turns out to be another factor lending some support to the safe-haven precious metal, though the US-China trade optimism could keep a lid on further gains.
• Top officials from the US and China agreed on Sunday a framework for a potential trade deal that will be discussed when Trump and Chinese President Xi Jinping meet this week, easing concerns about a full-blown trade war.
• This, in turn, remains supportive of the upbeat mood around the equity markets and might hold back traders from placing fresh bullish bets around the XAU/USD pair heading into this week's key central bank event risks.

Gold extends intraday breakdown momentum below 38.2% Fibo. level; bears eye $3,900

Acceptance below the $4,000 psychological mark, along with the fact that oscillators on the daily chart have just started gaining negative traction, backs the case for a further depreciating move for the Gold price. The XAU/USD bears, however, might wait for some follow-through selling below the $3,970 area and the $3,945 region, or the 38.2% Fibonacci retracement level of the July-October rally, before placing fresh bets. The commodity might then accelerate the downfall towards testing sub-$3,900 levels en route to the 50% retracement level, around the $3,810-$3,800 region and the 50-day Simple Moving Average (SMA), currently pegged near the $3,775 area.

On the flip side, move beyond the Asian session high, around the $4,019-4,020 region, could be seen as a selling opportunity and remain capped near the $4,050-4,055 zone. A sustained strength beyond might trigger a short-covering rally towards the $4109-4,110 region, which coincides with the 23.6% Fibo. retracement level support break point. Some follow-through buying would negate the near-term negative outlook and lift the Gold price to the $4,155-4,160 supply zone en route to the $4,200 mark and the next relevant hurdle near the $4,252-4,255 region.