Gold recovers further from two-month low amid some USD profit-taking

Gold (XAU/USD) builds on its modest intraday bounce from the $4,100 neighborhood, or a two-month low, and climbs above $4,150 during the first half of the European session on Tuesday. The US Dollar (USD) pauses for a breather following the recent strong rally from the September monthly swing low and offers some support to the precious metal. Adding to this, receding bets on an October Federal Reserve (Fed) rate hike benefit the non-yielding bullion. The fundamental backdrop, however, suggests that the path of least resistance for the commodity remains to the downside and warrants caution before positioning for any further move higher.

The US macro data released last week pointed to moderating inflation and a slight cooling in the labor market. Moreover, crude oil prices hang near a four-week low as resilient Middle Eastern crude exports and a G7 emergency stockpile release eased supply concerns, significantly easing pressure on the US Federal Reserve (Fed) to raise interest rates. Traders, however, are still pricing in over an 85% chance that the US central bank will raise borrowing costs again by the end of this year.

Fed hike expectations hold as markets digest softer payrolls

Economists at Deutsche Bank argue that the softer headline payrolls print has not fundamentally altered the broader labour-market story. They note that “although the headline payroll number was disappointing, the wider labour-market picture remains relatively resilient, particularly alongside recent ADP and jobless-claims readings,” and on that basis their team “continue to expect two further 25bp Fed hikes over the next couple of quarters.” In terms of market pricing, Deutsche Bank highlight that “the market is pricing in another 86bps over the next 12 months, down from 100bps early last week but up from 70bps just after the payroll release,” underscoring how rate expectations have moderated but remain firmly skewed toward additional tightening.

Apart from this, persistent geopolitical uncertainties and elevated US bond yields should limit the USD corrective pullback from its highest level since April 2025, set on Monday, which might continue to act as a headwind for the Gold price. In the latest developments surrounding the Middle East crisis, the Iran-backed Houthi group in Yemen said that it carried out three military operations using ballistic and cruise missiles and drones against airports, an oil facility, and military sites across Saudi Arabia. Separately, the Saudi-led coalition fighting in Yemen said it had destroyed a ballistic missile launch platform in the capital Sanaa and a storage facility inside a mountainous site in Saada.

Adding to this, media reports suggest that Israel is preparing a potential attack against Iran, either in coordination with the US or independently, raising the risk of a further escalation of tensions in the Middle East. Meanwhile, a deepening fiscal shock in France led to an extended rout in the fixed income market, keeping US bond yields near multi-year highs and offering additional support to the Greenback. This, in turn, suggests that the path of least resistance for gold remains to the downside. Bearish traders, however, might await more cues about the Fed's policy path before placing fresh bets on the XAU/USD pair and positioning for an extension of the fall from the August swing high.

Hence, the focus will remain glued to the release of the FOMC meeting Minutes, due on Wednesday. Apart from this, speeches from influential FOMC members, along with the incoming geopolitical headlines, will play a key role in driving the USD and provide some impetus to gold. Nevertheless, the aforementioned fundamental backdrop backs the case for an eventual XAU/USD breakdown below the lower boundary of a familiar range held over the past week or so.

XAU/USD 4-hour chart

Technical Analysis

Against the backdrop of a fall from the August monthly swing high, the recent range-bound price action might still be categorized as a bearish consolidation phase. Furthermore, the Moving Average Convergence Divergence (MACD) indicator sits below zero, while the Relative Strength Index (RSI) near 38 suggests weak momentum that reinforces the downside bias rather than a clear oversold condition.

However, a convincing break below the trading range and the 78.6% Fibonacci retracement at $4,098 is needed to back the case for deeper losses toward the structural floor around the prior cycle low near $3,936. On the topside, initial resistance is located at the 61.8% Fibo. retracement at $4,226, followed closely by the 100-period Simple Moving Average (SMA) on the 4-hour chart at $4,254. Further barriers are pegged at the 50.0% retracement near $4,316 and higher Fibonacci levels at $4,406 and $4,517 before the distant swing high around $4,696.

(The technical analysis of this story was written with the help of an AI tool. Know more.)