Despite the rise in the dollar, gold prices hit record highs after consolidation, bullish potential remains intact

Spot gold held steady after hitting a new record high in the Asian session on Tuesday (October 7), and appears poised to climb further on a favorable fundamental backdrop. Market expectations that the Federal Reserve will cut interest rates twice more this year have failed to help the dollar attract meaningful buyers, continuing to provide a tailwind for non-yielding gold. In addition, the ongoing U.S. government shutdown has maintained demand for safe-haven gold bars as trade and geopolitical tensions rise.

At the same time, widespread selling pressure on the Japanese yen (JPY) has provided some support for the dollar. This, along with the general bullish sentiment in the market, is still overbought on the daily chart, providing resistance to safe-haven gold. Nonetheless, the above factors suggest that the path of least resistance for gold prices remains upwards, and any pullback may still be viewed as a buying opportunity. Traders are now looking forward to speeches from influential FOMC (FOMC) members to gain a fresh boost.

Daily market dynamics summary: Gold bulls are reluctant to give up under Federal Reserve interest rate cut expectations and safe-haven buying

The dollar regained some positive momentum after retreating from its late-September highs in the previous session and is trading around 98.28, up about 0.2 percent, limiting gold's rise to new all-time highs in Asia. The Nasdaq and S & P 500 hit new record closing highs on Monday in preparation for next week's third-quarter earnings season, further limiting safe-haven gold in overbought conditions.

Traders have started pricing in the Federal Reserve's two interest rate cuts in October and December. The dovish outlook represents headwinds for the dollar and has been a key factor in recent record gains in non-yielding gold. In addition, concerns that a prolonged US government shutdown could disrupt economic activity continue to support the commodity.

The federal government was shut down for a sixth day on Monday as the Senate struggled to reach consensus on a Republican-backed spending bill and calls continued for healthcare subsidies. President Donald Trump said he was willing to work with Democrats on healthcare but only if the government could reopen. Any furlough for federal workers poses a risk to the labour market and limits the rise of the dollar.

Ukraine says its long-range drones struck a major munitions factory, an oil depot and an arms depot on Russian soil. The International Atomic Energy Agency reported on Monday that its teams heard multiple rounds of incoming and fired artillery near Ukraine's Zaporozhye nuclear power plant. Ukrainian President Volodymyr Zelensky accused the West of having no practical response to Russia's escalating bombing campaign.

The first day of indirect talks between Israel and Hamas in Egypt, centered around Trump's 20-point Gaza peace plan, saw positive progress. The proposed peace initiative outlines a multi-stage roadmap that garnered broad international support, starting with a ceasefire and the release of all remaining hostages held by Hamas. In exchange, Israel would release Palestinian prisoners. Discussions will reportedly continue on Tuesday.

Nonetheless, geopolitical risks remain, which should further limit any pullback in haven commodities. Traders are now looking forward to speeches from influential FOMC members, including Federal Reserve Chairperson Jerome Powell's appearance on Thursday. Additionally, Wednesday's FOMC meeting notes could provide more clues about a rate cut, which should boost the dollar and provide a fresh boost to the XAU/USD pair.

Technical analysis: Despite overbought daily RSI, gold prices are expected to continue their recent upward trend

An overnight break above the $3,900 mark is seen as a new trigger for bulls, supporting a continuation of the recently established upward trend in gold prices. However, the Relative Strength Index (RSI) on the daily chart is well above 70, indicating extremely overbought conditions. This makes it prudent to wait for a short-term consolidation or moderate pullback before positioning for further gains.

At the same time, any pullback below the $3,950 area is likely to be seen as a buying opportunity and is likely to be limited near the $3,900 integer mark. The latter is near the 100-hour simple moving average (SMA) and if it falls below it could trigger some technical selling, dragging gold prices down an important support level in the $3,865-3,863 area. The decline could extend further, testing the sub-$ 3,800 level hit last Tuesday, which should serve as a solid bottom and key pivot point in the short term.

(Spot gold 1-hour chart,Pepperstone(Source: Internet)

At 14:45 Beijing time, spot gold was trading at $3,960.06 per ounce.