Gold trades with negative bias below all-time peak on firmer USD; downside seems limited

Gold (XAU/USD) recovers slightly from the $3,940 area, or the daily low touched during the first half of the European session, and for now, seems to have stalled its intraday retracement slide from the all-time peak. Moreover, the supportive fundamental backdrop backs the case for an extension of the recent well-established uptrend. Domestic political uncertainties continue to weigh on the Japanese Yen (JPY) and the Euro, which, in turn, assists the US Dollar (USD) to gain positive traction for the second straight day. This, along with the underlying bullish sentiment, prompts some profit-taking around the safe-haven precious metal amid still overbought conditions on short-term charts.

Any meaningful USD appreciation, however, seems limited in the wake of the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs two more times this year, which might continue to act as a tailwind for the non-yielding Gold. Apart from this, concerns that the ongoing US government shutdown could affect the economic performance keep demand for the safe-haven bullion in play amid persistent trade-related and geopolitical tensions. This, in turn, validates the positive outlook for the XAU/USD pair and suggests that any further corrective slide could be seen as a buying opportunity. Traders now look to speeches from influential FOMC members for a fresh impetus.

Daily Digest Market Movers: Gold is pressured by a pickup in USD demand

• The US Dollar regains some positive traction following the previous day's late pullback from the vicinity of the late September swing high and keeps a lid on the precious metal's Asian session uptick to a fresh all-time high. The Nasdaq and the S&P 500 registered fresh record closing highs on Monday ahead of third-quarter earnings next week, which further contributes to capping the safe-haven Gold amid still overbought conditions.
• Traders have been pricing in the possibility of two more interest rate cuts by the US Federal Reserve this year, in October and December. The dovish outlook acts as a headwind for the USD and has been a key factor behind the recent record-setting run in the non-yielding yellow metal. Apart from this, concerns that a prolonged US government shutdown could potentially disrupt economic activity continue to lend support to the commodity.
• The US federal government remained shuttered for the sixth day on Monday, with the Senate struggling to reach consensus on a Republican-backed spending bill amid calls for the continuation of healthcare subsidies. US President Donald Trump said he was open to working with the Democrats on healthcare, but only if the government was allowed to reopen. Any furloughing of federal workers presents risks for the labor market and caps the USD.
• Ukraine said its long-range drones struck a major ammunition plant, an oil terminal, and a weapons depot deep inside Russian territory. The International Atomic Energy Agency reported on Monday that its team heard multiple rounds of incoming and outgoing shelling near Ukraine’s Zaporizhzhia nuclear power plant. Ukraine's President Volodymyr Zelenskyy accused the West of zero real reaction to Russia’s escalating bombing campaign.
• The first day of indirect talks between Israel and Hamas in Egypt, centered around Trump’s 20-point Gaza peace plan, ended on a positive note. The proposed peace initiative outlines a multi-phase roadmap, starting with a ceasefire and the release of all remaining hostages held by Hamas, and has gained broad international support. In exchange, Israel would release Palestinian prisoners. According to reports, the discussion will continue on Tuesday.
• Nevertheless, geopolitical risks remain in play, which should further contribute to limiting any corrective pullback in the safe-haven commodity. Traders now look forward to speeches from influential FOMC members, including Fed Chair Jerome Powell's appearance on Thursday. Apart from this, FOMC Minutes on Wednesday could offer more cues on interest rate cuts, which would drive the USD and provide a fresh impetus to the XAU/USD pair.

Gold could attract dip-buying amid bullish technical setup; $3,900 holds the key

The overnight breakout through the $3,900 mark was seen as a fresh trigger for bulls and backs the case for an extension of the recent well-established uptrend for the Gold price. However, the daily Relative Strength Index (RSI) on the daily chart is holding well above the 70 mark and points to extremely overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.

Meanwhile, any corrective slide below the $3,950 area could be seen as a buying opportunity and is likely to remain limited near the $3,900 round figure. The latter nears the 100-hour Simple Moving Average (SMA), which, if broken, might prompt some technical selling and drag the Gold price to the next relevant support near the $3,865-3,863 area. The downfall could extend further towards testing sub-$3,800 levels touched last Tuesday, which should act as a strong near-term base and key pivotal point.

(This story was corrected on October 7 at 09:24 GMT to say that Gold recovers slightly from the $3,940 area, not $3,840.)