Gold (XAU/USD) extended its decline on Tuesday after briefly testing the $4,000 psychological level earlier in the European session. At the time of writing, XAU/USD traded around $3,935, down nearly 1.80% on the day, pressured by a stronger US Dollar (USD) and a cautious tone from Federal Reserve (Fed) officials.
The metal remains in a consolidation phase following its correction from the record high of $4,381 reached on October 20. A retreat in global equities helped limit further losses as risk-off sentiment provided some support. However, the upside remains constrained by reduced safe-haven demand and waning expectations of another Fed rate cut this year.
Despite the pullback, the broader uptrend remains intact amid lingering geopolitical tensions and economic uncertainty. The ongoing US government shutdown has also added to investor caution, keeping market sentiment fragile.
Market movers: traders reassess Fed outlook and China curbs gold demand
In China, new value-added tax (VAT) rules on gold prompted several state-owned banks to halt physical redemptions and restrict new retail account openings. The revised policy cuts the VAT exemption on certain gold transactions from 13% to 6%, aiming to cool speculative demand. Analysts expect the measure to temporarily dampen retail buying in one of the world’s largest physical gold markets.
Meanwhile, Fed officials offered mixed views on monetary policy. Governor Lisa Cook noted that inflation remains above the 2% target and could stay elevated into next year, though she viewed the recent 25-basis-point rate cut as appropriate given rising employment risks.
Chicago Fed President Austan Goolsbee said he remains wary of front-loading cuts, describing inflation as still “worrisome,” while Governor Stephen Miran cautioned that financial conditions alone are a poor guide for policy direction.
Following these remarks, traders reassessed the likelihood of a December rate cut. According to the CME FedWatch Tool, markets now assign around a 70% chance of a 25-basis-point reduction at the next meeting down from 94% a week ago but slightly higher than Monday’s 65%.
UBS maintained its bullish outlook on gold, arguing that the recent pullback is likely temporary. The bank expects prices to reach $4,200 per ounce, with a potential upside scenario toward $4,700 if geopolitical risks intensify. UBS noted that “the much-anticipated correction has taken a breather,” emphasizing that underlying demand remains solid despite weaker price momentum.
Technical outlook: gold consolidates below $4,000 resistance
From a technical standpoint, gold (XAU/USD) continues to trade within a narrow range just below the $4,000 level. On the 4-hour chart, immediate resistance lies near the 50-period Simple Moving Average (SMA) around $4,020–$4,050, a former support zone now acting as resistance.
A sustained break above this area could open the way toward the 100-period SMA near $4,107, with follow-through buying extending gains toward $4,150.
On the downside, initial support is seen near the intraday low of $3,966, followed by the $3,900 psychological level. The Relative Strength Index (RSI) sits around 47, suggesting a neutral tone and reinforcing the view that gold remains in a consolidation phase below key resistance.
