Gold stands firm near three-week top, above $4,200 amid Fed rate cut bets

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) advances to a fresh three-week high on Thursday and seems poised to prolong a one-week-old uptrend amid a supportive fundamental backdrop. 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. This, in turn, is seen as a key factor acting as a tailwind for the non-yielding yellow metal and backs the case for additional gains.

Meanwhile, the optimism led by a positive development to reopen the US federal government remains supportive of a positive risk tone and is holding back traders from placing fresh bullish bets around the safe-haven Gold. Furthermore, a modest US Dollar (USD) uptick contributes to capping the upside for the commodity. That said, a sustained strength and acceptance above the $4,200 mark favors the XAU/USD bulls, suggesting that any meaningful corrective slide might still be seen as a buying opportunity and remain limited.

Daily Digest Market Movers: Gold continues to draw support from dovish Fed 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, in turn, is seen acting as a headwind for the Greenback and offering some support to the non-yielding Gold heading into the European 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.