Gold drifts lower amid positive risk tone, further USD recovery; downside seems limited

• Gold attracts fresh sellers following the overnight bounce from the $3,820 region.
• A positive risk tone and some follow-through USD buying weigh on the commodity.
• Fed rate cut bets and geopolitical tensions could limit losses for the XAU/USD pair.

Gold (XAU/USD) struggles to capitalize on the overnight late rebound from the $3,820 region and attracts some sellers during the Asian session on Friday. The global risk sentiment seems unfazed by a partial US government shutdown for the third straight day. This is evident from a generally positive tone around the equity markets and acts as a headwind for the safe-haven precious metal. Furthermore, the US Dollar (USD) is looking to build on Thursday's bounce from a one-week low, and turns out to be another factor that contributes to capping the commodity.

Meanwhile, rising bets for more interest rate cuts by the US Federal Reserve (Fed) might keep a lid on a meaningful appreciating move for the USD and continue to offer some support to the non-yielding Gold. Apart from this, geopolitical tensions could also contribute to limiting the downside for the yellow metal. Nevertheless, the XAU/USD pair remains on track to register gains for the seventh consecutive week. Moreover, the fundamental backdrop suggests that any corrective pullback might still be seen as a buying opportunity and is more likely to remain cushioned.

Daily Digest Market Movers: Gold is undermined by receding safe-haven demand and modest USD strength

• The US Dollar staged a goodish recovery from a one-week low touched on Thursday and triggered an intraday turnaround in the Gold price from the vicinity of the $3,900 mark, or a fresh all-time peak. The precious metal, however, rebounded from the $3,820 area, though it lacks follow-through and ticks lower for the second straight day on Friday.
• US Treasury Secretary Scott Bessent warned on Wednesday that the government shutdown could hurt the economy more than those in the past, with potential hits to the GDP, growth, and the labor market. Traders, however, brushed aside worries amid expectations of a limited impact of a partial government shutdown on the economic performance.
• The optimism led to another session of record highs on Wall Street, and the spillover effect remains supportive of a generally positive tone around the Asian equity markets. This turns out to be another factor undermining demand for the safe-haven Gold during the Asian session, though any meaningful corrective fall still seems elusive.
• Traders ramped up their bets that the US Federal Reserve will lower borrowing costs two more times this year, in October and December, following Wednesday's disappointing release of the ADP report on private-sector employment. This could act as a headwind for the Greenback and continue to act as a tailwind for the non-yielding yellow metal.
• Meanwhile, the US reportedly will provide Ukraine with intelligence to support long-range missile strikes on Russian energy infrastructure. Trump approved the move, and US officials are urging NATO allies to do the same. This keeps geopolitical risks in play and should help limit any further corrective fall for the safe-haven precious metal.
• Important US macro data scheduled at the beginning of a new month, including the Nonfarm Payrolls (NFP) report, could be delayed due to the US government shutdown. Nevertheless, speeches from influential FOMC members could drive the USD demand and provide short-term impetus to the XAU/USD pair heading into the weekend.

Gold could slide further following Thursday's breakdown below a short-term ascending trend line

The overnight breakdown below a one-week-old ascending trend-line backs the case for a further long unwinding amid still overbought daily Relative Strength Index (RSI). Any further slide, however, is more likely to find support near the overnight swing low, around the $3,820-3,819 region. This is followed by the $3,800 mark, which, if broken decisively, should pave the way for deeper losses. The subsequent downfall could drag the Gold price to the next relevant support near the $3,758-3,757 zone en route to the $3,735 region and the $3,700 round figure.

On the flip side, the ascending trend-line support breakpoint, around the $3,863-3,865 zone, now seems to act as an immediate hurdle, above which the Gold price could aim to retest the all-time peak, around the $3,896-3,897 region. Some follow-through buying beyond the $3,900 mark will be seen as a fresh trigger for the XAU/USD bulls and set the stage for an extension of the recent well-established uptrend.