Gold (XAU/USD) surged above $3,900 during Monday's Asian session, hitting a new record high amid growing acceptance of further interest rate cuts by the US Federal Reserve. Furthermore, the ongoing US government shutdown is maintaining demand for safe-haven gold bullion amid escalating trade and geopolitical tensions. Meanwhile, easing-minded Sanae Takaichi was elected leader of Japan's ruling Liberal Democratic Party and became Prime Minister. This increases the likelihood that the Bank of Japan will delay further interest rate hikes, another factor driving inflows into the non-yielding yellow metal.

Furthermore, this strong rally could be attributed to some technical selling following sustained strength and acceptance above $3,900. However, a healthy rebound in US dollar (USD) buying, supported by a weaker Japanese yen (JPY), could act as a drag on gold prices. Furthermore, overbought conditions on short-term charts make it prudent to wait for some near-term consolidation or a slight pullback before taking positions to extend the solid uptrend we've seen over the past seven weeks. However, the fundamental backdrop suggests that the path of least resistance for the gold/USD pair is upward.

Daily Market Movers: Gold Bulls Remain in Control Amid a Constellation of Supportive Factors

• According to the CME FedWatch tool, the probability of a 25 basis point interest rate cut by the US Federal Reserve in October and December is 95% and 83%, respectively. This has been a key factor in the record-high price of non-yielding gold since early September.
• The White House could resort to mass layoffs of federal employees if US President Donald Trump concludes that negotiations with congressional Democrats to end the partial government shutdown have reached an impasse. This adds further uncertainty and benefits the safe-haven metal.
• The election of Sanae Takaichi as leader of Japan's Liberal Democratic Party in a runoff election on Saturday has increased the likelihood that the Bank of Japan will avoid raising interest rates this month. This, in turn, provides additional support to the gold/USD pair, contributing to its rise.
• Meanwhile, expectations of expansionary economic policies are weighing on the Japanese yen, which in turn is providing a strong boost to the US dollar. This, coupled with market optimism, could hinder the safe-haven precious metal as overbought conditions persist.
• Important US macroeconomic releases scheduled for the beginning of the new month have been postponed due to the US government shutdown. However, speeches by influential members of the Federal Open Market Committee could move the US dollar and provide short-term momentum for the commodity later in the US session.
• On the geopolitical front, Russia launched a new barrage of missiles and drones into Ukraine on Sunday. Ukrainian President Volodymyr Zelenskyy stated that the overnight attack saw more than 50 missiles and approximately 500 attack drones launched from Russia toward his country.
• On Monday, US President Donald Trump urged Israel and Hamas to "move quickly" on a peace plan for Gaza, warning that failure to do so could lead to "massive bloodshed." This maintains geopolitical risks and suggests that the path of least resistance for the commodity is upward.