Gold hits record highs for third straight day as Fed rate cut bets weigh on USD

• Gold continues to scale new record highs for the third consecutive day on Tuesday.

• Fed rate cut bets keep the USD depressed and benefit the non-yielding commodity.

• Extremely overbought conditions warrant caution before placing fresh bullish bets.

Gold (XAU/USD) prolongs its recent record-setting run for the third straight day and climbs beyond the $3,650 level during the Asian session on Tuesday. The US Nonfarm Payrolls (NFP) report released on Friday pointed to signs of a weakening labor market and reinforced expectations that the US Federal Reserve (Fed) will lower borrowing costs at its upcoming policy meeting next week. Furthermore, traders are now pricing the possibility of three rate cuts by the end of this year. The outlook drags the US Dollar (USD) to its lowest level since July 28 and continues to drive flows towards the non-yielding yellow metal.

Moreover, political turmoil in Japan and France turns out to be another factor that benefits the safe-haven Gold. The ongoing positive momentum, meanwhile, seems rather unaffected by the upbeat market mood, which tends to undermine demand for the precious metal. That said, extremely overbought conditions might hold back the XAU/USD bulls from placing fresh bets and cap any further gains. Nevertheless, the fundamental backdrop suggests that any corrective pullback might still be seen as a buying opportunity and is more likely to remain limited. The market attention now shifts to the release of the latest US inflation figures – the Producer Price Index (PPI) and the Consumer Price Index (CPI) on Wednesday and Thursday, respectively.

Daily Digest Market Movers: Gold continues to be backed by Fed rate cut bets, safe-haven flows

Soft US labor data released on Friday reaffirmed bets that the Federal Reserve will cut interest rates next week and lifts the non-yielding Gold price to a fresh record high for the third consecutive day on Tuesday. In fact, traders are now pricing in a small possibility of a jumbo rate cut at the September 16-17 FOMC meeting and expect the Fed to lower borrowing costs three times by the end of this year.

Meanwhile, US President Donald Trump has shown his discontent towards Fed Chair Jerome Powell for being too late to act on borrowing costs. Moreover, Trump's calls to dismiss Fed governors fueled concerns about the central bank's independence. This keeps the US Dollar depressed near its lowest level since July 28, which is seen as another factor that contributes to the XAU/USD pair's uptrend.

France's Prime Minister Francois Bayrou lost a vote of confidence in the National Assembly, resulting in his resignation. This comes on top of Japanese Prime Minister Shigeru Ishiba's announcement over the weekend that he will step down as President of the ruling Liberal Democratic Party (LDP). Apart from this, persistent geopolitical tensions further seem to underpin the safe-haven precious metal.

In fact, Trump said that he was prepared to apply new sanctions on Russia, following the latter's largest-ever rocket and drone attack on Ukraine over the weekend. Ukrainian President Volodymyr Zelenskyy reacted to the attack by saying that he is counting on a strong US response. This keeps geopolitical risks in play and backs the case for a further near-term appreciating move for the commodity.

The market focus now shifts to the release of the latest US inflation figures, which will play a key role in influencing the USD price dynamics during the latter part of the week and provide some meaningful impetus to the bullion. The fundamental backdrop, meanwhile, suggests that the path of least resistance for the XAU/USD pair is to the upside, though overbought conditions warrant some caution.

Gold needs to consolidate before any further move higher amid extremely overbought conditions

From a technical perspective, the daily Relative Strength Index (RSI) is holding well above the 70.0 mark and making it prudent to wait for some near-term consolidation or a modest pullback before positioning for the next leg up. Any corrective decline, however, could attract dip-buyers near the $3,600 round figure, below which the Gold price could slide further towards the $3,565-3,560 intermediate support en route last Thursday's swing low, around the $3,510 region. Some follow-through selling below the $3,500 psychological mark should pave the way for deeper losses.