Gold buying remains unabated amid Fed rate cut bets and US government shutdown

• Gold hits a fresh all-time high on Monday amid a supportive fundamental backdrop.
• Fed rate cut bets and the US government shutdown underpin the precious metal.
• Bulls seem unaffected by a firmer USD, the risk-on mood, and overbought conditions.

Gold (XAU/USD) surges past the $3,900 round figure during the Asian session on Monday, hitting a fresh record high amid the growing acceptance for additional interest rate cuts by the US Federal Reserve (Fed). Furthermore, the ongoing US government shutdown also keeps demand for safe-haven bullion in play on the back of rising trade and geopolitical tensions. Meanwhile, a fiscal dove Sanae Takaichi was elected as the leader of Japan's ruling Liberal Democratic Party (LDP) and became the next Prime Minister. This raises the chance that the Bank of Japan (BoJ) would delay raising interest rates further and turns out to be another factor driving flows towards the non-yielding yellow metal.

Apart from this, the strong move up could further be attributed to some technical selling following a sustained strength and acceptance beyond the $3,900 mark. That said, a goodish pickup in the US Dollar (USD) buying, bolstered by a slump in the Japanese Yen (JPY), could act as a headwind for the Gold price. Moreover, extremely overbought conditions on short-term charts make it prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the recent well-established uptrend witnessed over the past seven weeks or so. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the upside.

Daily Digest Market Movers: Gold bulls retain control amid a combination of supporting factors

• According to the CME FedWatch tool, the possibility of a 25-basis-point interest rate cut by the US Federal Reserve in October and December stands at 95% and 83%, respectively. This has been a key factor fueling the record-setting rally in the non-yielding Gold since early September.
• The White House may resort to mass layoffs of federal workers if US President Donald Trump concludes that negotiations with congressional Democrats to end a partial government shutdown have reached a dead end. This adds a layer of uncertainty and benefits the safe-haven commodity.
• Sanae Takaichi's election as the leader of Japan's Liberal Democratic Party in a run-off election held on Saturday raised the chances that the Bank of Japan will avoid raising interest rates this month. This, in turn, provides an additional boost to the XAU/USD pair and contributes to the move up.
• Meanwhile, expectations for more expansionary economic policies weigh heavily on the Japanese Yen, which, in turn, provides a strong lift to the US Dollar. This, along with the upbeat market mood, could act as a headwind for the safe-haven precious metal amid still overbought conditions.
• Important US macro releases scheduled at the beginning of a new month have been delayed due to the US government closure. Nevertheless, speeches from influential FOMC members could drive the USD and provide short-term impetus to the commodity later during the US session.
• On the geopolitical front, Russia launched yet another barrage of missiles and drones against Ukraine on Sunday. Ukraine's President Volodymyr Zelenskyy said that the overnight attack saw over 50 missiles and about 500 attack drones fired from Russia towards his country.
• US President Donald Trump on Monday urged Israel and Hamas to "move fast" on the Gaza peace plan, warning that failure to do so may lead to "massive bloodshed". This keeps geopolitical risks in play and suggests that the path of least resistance for the commodity is to the upside.

Gold bulls seem unstoppable; a fresh breakout through the $3,900 mark comes into play

From a technical perspective, Monday's strong move up beyond the $3,900 mark could be seen as a fresh trigger for the XAU/USD bulls and validates the near-term positive outlook. However, the daily Relative Strength Index (RSI) is holding well above the 70 mark and flashing overbought conditions, warranting some caution before positioning for any further gains.

On the flip side, any corrective pullback might now be seen as a buying opportunity and remain limited near the $3,900-3,895 region. A convincing break below might prompt some technical selling and drag the Gold price to the near relevant support near the $3,865-3,863 area, or the 100-hour Simple Moving Average (SMA). The latter nears an ascending trend-line extending from sub-$3,800 levels touched last Tuesday and should act as a key pivotal point.