Gold bounces off two-week low amid weaker USD, Fed rate-cut bets; trade optimism caps gains

• Gold attempts a modest recovery from an over two-week low amid a broadly weaker USD.
• Bets that the Fed will cut rates two more times this year continue to undermine the buck.
• The US-China trade optimism caps the safe-haven commodity ahead of the FOMC meeting.

Gold (XAU/USD) attracts some buyers during the Asian session on Tuesday and recovers a part of the previous day's losses to the $3,972-3,971 region, or an over two-week low. The US Dollar (USD) drifts lower for the second straight day amid the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs two more times this year, which turns out to be a key factor offering some support to the non-yielding yellow metal. Apart from this, geopolitical risks stemming from the protracted Russia-Ukraine war further underpin the safe-haven commodity.

However, signs of easing trade tensions between the US and China – the world's two largest economies – act as a headwind for the Gold and keep a lid on further gains. Traders also seem reluctant to place aggressive directional bets ahead of the expected interest rate cut by the US central bank on Wednesday. The real focus will be on guidance for a follow-up rate cut in December or early next year. This makes it prudent to wait for strong follow-through buying before confirming that the XAU/USD pair's recent corrective slide from the all-time peak has run its course.

Daily Digest Market Movers: Gold draws support from a weaker USD; bulls seem reluctant amid trade optimism

• Expectations of further interest rate cuts by the US Federal Reserve keep the US Dollar depressed for the second straight day on Tuesday and assist the non-yielding Gold to stage a modest recovery from an over two-week low.
• According to the CME Group's FedWatch Tool, traders have fully priced in that the US central bank will lower borrowing costs by 25-basis-points at the end of a two-day meeting on Wednesday and cut rates again in December.
• The bets were reaffirmed by the latest US inflation figures released on Friday, which showed that the headline Consumer Price Index and the core gauge (excluding food and energy) increased by the 3% YoY rate in September.
• US President Donald Trump, in response to Russian President Vladimir Putin's announcement of a successful test of a new nuclear-powered cruise missile, warned that the US has a nuclear submarine off the coast of Russia.
• This keeps the risk of a further escalation of geopolitical tensions and turns out to be another factor lending some support to the safe-haven precious metal, though the US-China trade optimism could keep a lid on further gains.
• Top officials from the US and China agreed on Sunday a framework for a potential trade deal that will be discussed when Trump and Chinese President Xi Jinping meet this week, easing concerns about a full-blown trade war.
• This, in turn, remains supportive of the upbeat mood around the equity markets and might hold back traders from placing fresh bullish bets around the XAU/USD pair heading into this week's key central bank event risks.

Gold seems vulnerable to slide further as a breakdown below the $4,000 psychological mark remains in play

Acceptance below the $4,000 psychological mark, along with the fact that oscillators on the daily chart have just started gaining negative traction, backs the case for a further depreciating move for the Gold price. The XAU/USD bears, however, might wait for some follow-through selling below the $3,970 area and the $3,945 region, or the 38.2% Fibonacci retracement level of the July-October rally, before placing fresh bets. The commodity might then accelerate the downfall towards testing sub-$3,900 levels en route to the 50% retracement level, around the $3,810-$3,800 region and the 50-day Simple Moving Average (SMA), currently pegged near the $3,775 area.

On the flip side, move beyond the Asian session high, around the $4,019-4,020 region, could be seen as a selling opportunity and remain capped near the $4,050-4,055 zone. A sustained strength beyond might trigger a short-covering rally towards the $4109-4,110 region, which coincides with the 23.6% Fibo. retracement level support break point. Some follow-through buying would negate the near-term negative outlook and lift the Gold price to the $4,155-4,160 supply zone en route to the $4,200 mark and the next relevant hurdle near the $4,252-4,255 region.