Gold hits three-week top as dovish Fed bets offset US government reopening optimism

• Gold attracts follow-through buyers on Thursday amid a supportive fundamental backdrop.

• Economic concerns and Fed rate cut bets undermine the USD, benefiting the precious metal.

• The optimism led by the reopening of the US government could cap the safe-haven commodity.

Gold (XAU/USD) reverses a modest Asian session dip and climbs to an over three-week high, around the $4,213 region, on Thursday. Investors seem convinced that the delayed US macro data will show some weakness in the economy amid a prolonged US government shutdown and prompt the US Federal Reserve (Fed) to lower borrowing costs further in December. The outlook fails to assist the US Dollar (USD) in attracting any meaningful buyers and should continue to offer some support to the non-yielding yellow metal.

Meanwhile, the optimism led by a positive development to reopen the US federal government remains supportive of the underlying bullish sentiment across the global financial markets. This, in turn, might hold back traders from placing fresh bullish bets around the safe-haven Gold. That said, a sustained strength above the $4,200 mark, along with the supportive fundamental backdrop, favors the XAU/USD bulls. Hence, any corrective slide could be seen as a buying opportunity and is more likely to remain limited.

Daily Digest Market Movers: Gold bulls retain control as the USD struggles to lure buyers amid Fed rate cut bets

• The US Senate passed the funding bill to end the longest-running government shutdown, which boosts investors' confidence and remains supportive of a generally positive risk tone. This, in turn, might hold back the XAU/USD bulls from placing fresh bets, especially after the recent strong rise to an over three-week high, touched on Wednesday.

• 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. This, in turn, keeps the US Dollar bulls on the defensive.

• Moreover, data from workforce analytics company Revelio Labs released last week showed that 9,100 jobs were lost in October and government payrolls fell by 22,200 positions last month. Furthermore, the Chicago Federal Reserve estimated that the unemployment rate edged up last month, pointing to signs of a deteriorating labor market.

• Adding to this, investors remain tilted towards a more dovish Fed and have been pricing in around a 60% chance of another 25-basis-point interest rate cut at the December FOMC policy meeting. This turns out to be another factor undermining the USD and acting as a tailwind for the non-yielding Gold during the Asian session on Thursday.

• Atlanta Fed President Raphael Bostic said on Wednesday that real-time indicators signal the job market in a curious state of balance, and I do not view a severe labor market downturn as the most likely near-term outcome. I see little to suggest price pressures and moving policy lower risks feeding the inflation beast, Bostic added further.

• Traders will continue to scrutinize speeches from a slew of influential FOMC members for more cues about the Fed's future rate-cut path. The outlook, in turn, will play a key role in driving demand for the Greenback. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the XAU/USD pair is to the upside.

Gold seems poised to build on the momentum above $4,200

From a technical perspective, the XAU/USD pair now seems to have found acceptance above the 61.8% Fibonacci retracement level of the recent corrective decline from the all-time peak, touched in October, and the $4,200 round figure. This, along with positive oscillators on daily/4-hour charts, validates the constructive outlook for the Gold price. Hence, a subsequent strength towards the $4,250-$4,255 region, en route to the $4,285 zone and the $4,300 mark, looks like a distinct possibility.

On the flip side, any meaningful slide below the Asian session low, around the $4,180 region, might now be seen as a buying opportunity. This, in turn, should help limit the downside for the Gold price near the $4,100-$4,095 zone. The latter should act as a key pivotal point, which, if broken, might prompt some technical selling and drag the commodity to the $4,075 region, or the 38.2% Fibo. retracement level, en route to the $4,025 area. Some follow-through selling, leading to a further fall below the $4,000 psychological mark, might shift the near-term bias in favor of bearish traders and pave the way for deeper losses.