Gold clings to strong gains near record high amid dovish Fed, safe-haven buying

Gold holds sizeable gains and stays comfortably above the $3,900 mark, near the all-time peak touched early this Monday. Uncertainty surrounding a US government shutdown and expectations of the Federal Reserve (Fed) interest rate cuts power the ultimate store of value, Gold.

XAU/USD Technical Overview

As observed on the four-hour chart, the 14-day Relative Strength Index (RSI) is approaching the overbought region, currently near 67, suggesting that there is more room to the upside in the upcoming sessions.  

Buyers now target the $3,950 psychological barrier on the way to the $4,000 mark.  

Alternatively, if buyers take a breather and a pullback sets in, Gold could test the initial support at $3,872, the 21-Simple Moving Average (SMA), below which a drop toward the 50-SMA at $3,820 will be inevitable.  

A deeper correction could target the 100-SMA at $3,753.

Fundamental Overview

Gold has extended the previous advance, rallying as much as 1% so far this Monday to clinch a new all-time high near $3,925.  

Gold remains on the hunt for $4,000

Gold buyers appear unstoppable at the start of a fresh week, early Monday, despite the renewed US Dollar (USD) upswing and a risk-on rally on global stocks.

Gold is finding demand due to increased safe-haven flows, mainly driven by the murky United States (US) economic outlook in the face of the extended government shutdown, which has entered a seventh day.

There are no public signs that the Republican and Democratic lawmakers are making any efforts to end the impasse on reopening the federal government.

This deadlock has raised worries over layoffs amid already weakening US labor market conditions.

Asked on Sunday night when federal workers would be fired as he has threatened to do, US President Donald Trump said that “it's taking place right now and it's all because of the Democrats.”

“The Democrats are causing the loss of a lot of jobs,” Trump added.

Delayed US economic reports also add to the uncertainty over the US Federal Reserve’s (Fed) outlook on interest rates beyond the October 28-29 meeting.

Markets have fully priced in a 25 basis points (bps) rate cut later this month, with chances of a December rate reduction standing at about 94%, according to the CME Group’s FedWatch Tool.

The Fed’s dovish narrative combined with the US political and fiscal concerns outweighs the risk-on mood and the USD/JPY rally-driven USD rebound, powering the Gold price upside.

The Japanese Yen (JPY) sinks against the USD after “Sanae Takaichi won the Japanese ruling Liberal Democratic Party (LDP) leadership election at the weekend, setting the country on course for more expansionary fiscal policy and complicating the task facing the Bank of Japan (BoJ),” per Reuters.

Looking ahead, any fresh updates on the US shutdown talks could have a significant impact on the Greenback and Gold.

Meanwhile, any private data from the US will be closely eyed alongside speeches from Fed officials for fresh insights on the US economy and the Fed’s path forward on interest rates.