Gold extends rally amid geopolitical risks and Fed rate cut bets; fresh record high and counting

• Gold prolongs its record-setting run and continues to draw support from a combination of factors.
• Geopolitical risks, fears of a US government shutdown and Fed rate cut bets underpin the bullion.
• Dovish Fed expectations keep the USD depressed and further benefit the non-yielding commodity.

Gold (XAU/USD) continues scaling new record highs during the Asian session on Tuesday and climbs beyond the $3,250 level amid a supportive fundamental backdrop. Against the backdrop of escalating geopolitical tensions, the risk of a potential US government shutdown underpins demand for the safe-haven bullion. Apart from this, firming expectations for further interest rate cuts by the US Federal Reserve (Fed) turn out to be another factor driving flows towards the non-yielding yellow metal.

Meanwhile, the US Dollar (USD) struggles to attract any meaningful buyers and consolidates its losses registered over the past two days on the back of the Fed's dovish outlook. This offers additional support to the Gold. The momentum seems unaffected by extremely overbought conditions on short-term charts, suggesting that the path of least resistance for the XAU/USD pair remains to the upside. Traders now look to this week's US macro data, including the Nonfarm Payrolls (NFP) report for a fresh impetus.

Daily Digest Market Movers: Gold bulls retain control amid Fed rate cut bets and sustained safe-haven demand

• The last-gasp meeting hosted by US President Donald Trump with top Republican and Democratic congressional leaders yielded no budget breakthrough. Vice President JD Vance said that a government shutdown is bound to happen as an impasse remains over the flow of funding.
• Russia said on Monday that its military was analysing whether the US would supply Tomahawk cruise missiles to Ukraine for strikes deep into Russia. Russian officials added that such a move could trigger a steep escalation, keeping geopolitical risks in play and benefiting the bullion.
• Meanwhile, Trump said that the US was very close to securing peace in the Gaza war after releasing a 20-point plan. Trump also issued a warning to the Palestinian group Hamas that Israel will have the US's full backing to destroy the militant group if it rejects the peace deal.
• Trump signed a proclamation adjusting imports of timber, lumber, and derivative products into the US. This comes on top of a 100% tariff on imports of branded or patented pharmaceutical products , 25% levies on imports of all heavy-duty trucks starting October 1, announced last week.
• According to the CME Group's FedWatch Tool, traders are pricing in a 90% chance that the Fed will lower borrowing costs by 25 basis points in October and a nearly 70% possibility for another rate cut in December. This keeps the US Dollar depressed and underpins the precious metal.
• Tuesday's US economic docket highlights JOLTS Job Openings data and the Conference Board's Consumer Confidence Index. This, along with speeches by influential FOMC members, would drive the USD demand later during the North American session and drive the XAU/USD pair.

Gold uptrend remains uninterrupted; overbought RSI warrants caution for bullish traders

The overnight breakout through and close above the $3,800 round figure for the first time was seen as a fresh trigger for the XAU/USD bulls. A subsequent strength beyond the $3,850 level backs the case for a further appreciating move. However, the daily Relative Strength Index (RSI) is hovering around the 80.00 mark and points to extremely overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any extension of the recent well-established uptrend witnessed over the past month or so.

On the flip side, any corrective pullback below the $3,850 resistance breakpoint could be seen as a buying opportunity near the $3,835-3,834 horizontal zone. Some follow-through selling could pave the way for a slide towards the $3,822 region, though the downside is more likely to remain cushioned near the $3,800 round figure. The latter might now act as a key pivotal point, which, if broken decisively, should pave the way for deeper losses.