Gold recovers further from three-week low as traders await FOMC rate decision

• Gold reverses an Asian session dip on Wednesday, though it lacks follow-through buying.

• The US-China trade optimism acts as a headwind for the bullion amid a modest USD uptick.

• Traders also seem reluctant and keenly await the FOMC decision before placing fresh bets.

Gold (XAU/USD) attracts some buyers following an Asian session dip to the $3,917-3,916 area and moves further away from an over three-week low, touched the previous day. The commodity, for now, seems to have stalled its corrective pullback from the all-time peak, through any meaningful upside seems elusive as traders might opt to wait for the highly-anticipated FOMC decision before positioning for the next leg of a directional move. The US Federal Reserve (Fed) is expected to cut rates at the end of a two-day policy meeting later this Wednesday.

Meanwhile, investors will look for more cues about the future rate-cut path, which, in turn, will influence the US Dollar (USD) price dynamics and provide a fresh impetus to the non-yielding Gold. Heading into the key central bank event risk, some repositioning trade assists the USD to gain some positive traction and could act as a headwind for the Gold. Apart from this, signs of easing trade tensions between the US and China – the world's two largest economies – might contribute to capping gains for the safe-haven precious metal, warranting caution for bulls.

Daily Digest Market Movers: Gold traders move to the sidelines ahead of the crucial FOMC rate decision

Signs of progress in US-China trade discussions eased concerns about an all-out trade war between the world's two largest economies and dragged the safe-haven Gold below the $3,900 mark, or an over three-week low on Tuesday.

In fact, top officials from the US and China agreed over the weekend on a framework for a potential deal for US President Donald Trump and Chinese President Xi Jinping to review at their summit meeting this week, on Thursday.

However, expectations that the US Federal Reserve (Fed) will lower borrowing costs by 25 basis points at the end of a two-day meeting on Wednesday and deliver another rate cut in December help limit losses for the non-yielding yellow metal.

The upside for he commodity, however, is more likely to remain capped as traders opt to wait for more cues about the Fed's rate-cut path before confirming that the recent retracement slide from the all-time peak has run its course.

The Senate failed to advance a Republican-backed funding bill to end the government shutdown for the 13th time on Tuesday, underscoring a deadlock in Congress. Meanwhile, a US federal judge granted a preliminary injunction, indefinitely barring the Trump administration from firing federal employees during the ongoing government shutdown.

The US announced new sanctions on Russia’s two biggest oil companies. Moreover, the White House also cancelled a planned meeting between Trump and Russian President Vladimir Putin in Budapest. This signals strain between the US and Russia, which keeps geopolitical risks in play and might continue to support the safe-haven precious metal.

Gold seems vulnerable to slide further; $4,000 holds the key for bulls

The overnight close below the 38.2% Fibonacci retracement level of the August-October rally could be seen as a fresh trigger for the XAU/USD bears. Moreover, oscillators on the daily chart have just started gaining negative traction and back the case for an extension of the recent corrective decline witnessed over the past week or so. That said, a sustained recovery back above the $4,000 psychological mark could trigger a short-covering rally and lift the Gold price to the $4058-4,060 intermediate hurdle en route to the $4,100 round figure.

On the flip side, the Asian session trough, around the $3,917-3,916 region, the $3,900 mark, and the $3,886 zone, or the overnight swing low, could protect the immediate downside. This is followed by the 50% retracement level, near the $3,844-3,843 area, below which the Gold price could weaken to the $3,800 round figure. The downward trajectory could extend further towards the $3,765-3,760 intermediate support en route to the $3,720-3,715 region, or the 61.8% Fibo. retracement level.