Gold drifts lower amid receding safe-haven demand, firmer USD; downside seems limited

• Gold attracts fresh sellers on Tuesday as the Fed’s hawkish tilt continues to underpin the USD.
• A prolonged US government shutdown and geopolitical tensions limit losses for the commodity.
• The mixed technical setup warrants some caution before positioning for further depreciation.

Gold (XAU/USD) continues with its struggle to find acceptance above the $4,000 psychological mark on Tuesday and meets with a fresh supply during the Asian session. The commodity, however, manages to hold above the overnight swing low amid mixed fundamental cues, warranting some caution for aggressive bearish traders. The US Dollar (USD) attracts buyers for the fifth straight day and climbs to a fresh high since early August in the wake of the US Federal Reserve's (Fed) hawkish tilt, which, in turn, is seen undermining the non-yielding yellow metal.

Apart from this, the underlying bullish sentiment across the global financial markets turns out to be another factor driving flows away from the safe-haven Gold. That said, concerns about economic headwinds stemming from a prolonged US government shutdown could act as a headwind for the Greenback. Apart from this, persistent geopolitical uncertainties could offer support to the bullion and help limit deeper losses. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of the recent pullback from the all-time peak.

Daily Digest Market Movers: Gold bulls remain on the sidelines amid sustained USD buying interest

• Federal Reserve Chair Jerome Powell's comments last week tempered expectations for another interest rate cut in December and pushed the US Dollar to a fresh high since early August during the Asian session on Tuesday. In fact, Powell said that a further reduction in the policy rate at the December meeting is not a foregone conclusion.
• Traders were quick to react and are now pricing in a roughly 65% chance of a rate cut at the December 9-10 FOMC policy meeting, which continues to drive flows towards the USD and prompts fresh selling around the non-yielding Gold. However, economic risks stemming from a prolonged US government shutdown could cap the USD.
• The government shutdown is on the verge of becoming the longest in US history on Tuesday night amid Congressional deadlock. Democrats have refused to support a Republican-backed package to reopen the government as the upper chamber prepares to vote on the House-passed funding bill for the 14th time later this Tuesday.
• GOP Senator John Kennedy said he doesn’t expect his colleagues to eliminate the filibuster to reopen the government without winning over the support of Democrats, despite the President’s plea to throw out the 60-vote threshold. Senate Majority Leader John Thune said that he is optimistic about ending the government shutdown this week.
• Nevertheless, investors now seem worried that a prolonged government closure could cause economic damage, which, in turn, could limit the upside for the USD. Apart from this, persistent geopolitical uncertainties could offer some support to the safe-haven commodity and warrant some caution before positioning for any further losses.
• In the absence of any relevant market-moving economic releases from the US, traders will scrutinize comments from FOMC members for cues about the future rate-cut path and short-term impetus. Apart from this, the broader risk sentiment might contribute to producing short-term trading opportunities around the XAU/USD pair.

Gold needs to weaken further below $3,963-3,962 to back the case for any further downfall

The overnight failure near the 200-hour Simple Moving Average (SMA) and the subsequent fall back built the case for a further depreciating move for the commodity. However, neutral oscillators on the daily chart make it prudent to wait for some follow-through selling below the previous day's swing low, around the $3,963-3,952 region, before positioning for deeper losses. The XAU/USD pair might then accelerate the slide towards the $3,940 intermediate support en route to the $3,910-3,900 region and last week's swing low, around the $3,886 zone.

On the flip side, momentum back above the $4,000 mark might continue to face stiff resistance near the $4,025 region (200-hour SMA). This is followed by the $4,045-4,046 supply zone, which, if cleared decisively, could trigger a short-covering rally and allow the Gold price to reclaim the $4,100 round figure with some intermediate resistance near the $4,075 area.