Gold remains below three-week high amid firmer USD and risk-on mood

Gold (XAU/USD) reverses an intraday dip to sub-$4,100 levels and trades with a mild negative bias just below a three-week top during the early part of the European session on Wednesday. A positive development towards reopening the US government remains supportive of the risk-on mood and acts as a headwind for the safe-haven precious metal. Apart from this, a goodish pickup in the US Dollar (USD) demand turns out to be another factor exerting some pressure on the commodity.

The upside for the USD, however, seems capped amid expectations that an economic fallout from a prolonged US government shutdown might prompt the Federal Reserve (Fed) to cut rates again in December. This, in turn, holds back traders from placing aggressive bearish bets around the non-yielding Gold and helps limit deeper losses. Investors also opt to wait for speeches from a slew of influential FOMC members later this Wednesday for more cues about the Fed’s future rate-cut path.

Daily Digest Market Movers: Gold is undermined by positive risk tone and modest USD strength

• The reopening of the US government shifts market focus back to the deteriorating fiscal outlook and concerns about weakening economic momentum. Economists estimate that the prolonged government closure might have already shaved approximately 1.5 to 2.0% off quarterly GDP growth.
• The resumption of normal data flow would reinforce that expectation — especially after last week’s weaker-than-expected US employment and consumer sentiment indicators. Moreover, traders continue to assign a meaningful probability for a rate cut by the US Federal Reserve next month.
• Data from workforce analytics company Revelio Labs showed last week that 9,100 jobs were lost in October, and government payrolls fell by 22,200 positions. Moreover, the Chicago Fed estimated that the unemployment rate edged up last month, pointing to a deteriorating labor market.
• This reaffirmed dovish Fed expectations and dragged the US Dollar to a nearly two-week low on Tuesday, assisting the non-yielding Gold to build on its breakout momentum beyond the $4,100 mark. However, the upbeat market mood acts as a headwind for the safe-haven commodity.

Gold needs to find acceptance below $4,100 to back the case for further corrective decline

From a technical perspective, the XAU/USD pair seems to struggle to build on its strength beyond the 50% retracement level of the recent sharp corrective decline from the all-time peak, touched in October. However, positive oscillators on daily/4-hour charts favor bullish traders. Some follow-through buying beyond the $4,150-4,155 zone will reaffirm the constructive outlook and allow the Gold price to reclaim the $4,200 mark. The said handle nears the 61.8% Fibonacci retracement level, which, if cleared decisively, should pave the way for a further near-term appreciating move.

On the flip side, the overnight swing low, around the $4,100-4,095 region, could offer immediate support ahead of the $4,075 region, or the 38.2% Fibo. retracement level. A convincing break below the latter might prompt some technical selling and drag the Gold price to the $4,025 region en route to the $4,000 psychological mark. Some follow-through selling might shift the near-term bias in favor of bearish traders. The XAU/USD pair might then accelerate the fall towards the $3,936-3,935 region before eventually dropping to the $3,900 round figure.