Gold hits fresh all-time high on US-China trade tensions and Fed rate cut bets

• Gold attracts safe-haven flows amid fresh US-China trade tensions and geopolitical risks.

• Bets for more rate cuts by the Fed undermine the USD and further benefit the commodity.

• The fundamental backdrop favors the XAU/USD bulls despite still overbought conditions.

Gold (XAU/USD) attracts some follow-through buying for the second straight day and climbs to a fresh all-time peak, around the $4,059-4,060 region during the Asian session on Monday. Against the backdrop of economic uncertainties amid a prolonged US government shutdown, fresh US-China trade concerns boost demand for the safe-haven commodity. Apart from this, bets for further interest rate cuts by the US Federal Reserve (Fed) turn out to be another factor underpinning the non-yielding yellow metal.

In fact, traders are currently pricing in a greater chance that the US central bank will lower borrowing costs two more times this year. This keeps the US Dollar (USD) on the defensive, which further benefits the Gold price. Meanwhile, US President Donald Trump's softer tone on 100% China tariff eases fears of a worsening trade conflict between the world's two largest economies and triggers a fresh wave of the global risk-on trade. The upbeat market mood, in turn, holds back the XAU/USD bulls from placing fresh bets.

Daily Digest Market Movers: Gold bulls retain control amid global flight to safety, Fed rate cut bets

The global risk sentiment took a turn for the worse on Friday after US President Donald Trump threatened an additional tariff of 100% on Chinese exports and announced new export controls on critical software effective November 1. In response, China accuses the US of double standards over the tariff threat and said that it could introduce its own unspecified countermeasures if the US president carries out his threat, adding that it was not afraid of a possible trade war.

Trump, however, softened his stance over the weekend and posted on Truth Social that the US does not wish to hurt China. Trump added further that China’s economy will be fine and that both countries wish to avoid economic pain. Nevertheless, the escalating rhetoric fuels uncertainty over a potential meeting between Trump and Chinese President Xi Jinping later this year, pushing the Gold price to a fresh all-time peak during the Asian session on Monday.

The US government shutdown is on track to extend into a third week as Congress remains deadlocked on a funding plan. Moreover, the Senate isn’t scheduled to hold any votes until Tuesday afternoon. Top House leaders signaled that there is virtually no appetite for their parties to cross the aisle and engage with the other side’s demands. Trump blamed Democrats for his decision to lay off thousands of federal employees, who began receiving notices on Friday.

Trump, while aboard Air Force One, warned that he may send long-range Tomahawk missiles that could be used by Ukraine if Russia doesn’t settle the war soon. Trump added that the missiles would act as a new step of aggression if introduced in the Russia-Ukraine war. Russia has cautioned against Ukraine being provided with Tomahawk missiles. This keeps geopolitical risks in play and turns out to be another factor driving flows towards the safe-haven precious metal.

According to the CME FedWatch tool, the possibility of a 25-basis-point interest rate cut by the Fed in October and December stands at around 96% and 87%, respectively. This, in turn, backs the case for a further appreciating move for the non-yielding yellow metal amid the lack of any US Dollar buying interest and relatively thin liquidity on the back of a bank holiday in the US.

Gold seems poised to trek along a multi-week-old ascending trend line

Friday's bounce from the vicinity of a three-week-old ascending trend line support and the subsequent move up favor the XAU/USD bulls. However, still overbought conditions on short-term charts make it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains.

Meanwhile, any corrective slide below the $4,020-4,018 area is more likely to attract fresh buyers near the $4,000 psychological mark. This should help limit the downside for the Gold price near the aforementioned trend line support, currently pegged near the $3,965-3,964 area. A convincing break below the latter, however, might prompt some technical selling and pave the way for a fall towards the $3,900 round figure.