Gold has stabilised above $3,900 after reaching a three-week low. This marks the third consecutive day of losses as improved risk appetite reduces demand for safe-haven assets. The decline is driven by optimism around a potential US-China trade agreement. Despite the downward trend, factors such as the ongoing US government shutdown and anticipated monetary easing by the Federal Reserve could limit further declines.

The precious metal has corrected nearly 10% from its recent all-time high of $4,381. Traders are booking profits and repositioning portfolios ahead of an expected second interest rate cut by the Fed. Analysts predict Gold will average $4,275 per ounce by 2026 due to geopolitical uncertainty and continued central bank demand.

Technical Analysis and Predictions

The technical analysis shows a bearish trend with XAU/USD making lower highs and lows on the 4-hour chart. The price is below critical moving averages, confirming a short-term downward trend. The Relative Strength Index suggests possibly short-term consolidation before the broader downtrend continues. Analysts note that central banks hold large reserves of Gold, while the metal’s price typically rises with lower interest rates and depreciating US Dollar.

Gold’s role as a store of value and hedge against inflation remains vital. Central banks, particularly in emerging economies, are increasing their reserves, influenced by geopolitical instability and currency dynamics.

Given gold’s recent 10% correction from its all-time high, we are seeing a classic battle between risk-on sentiment and dovish monetary policy. The optimism surrounding the US-China trade talks is currently the main driver pushing prices down toward the $3,900 level. This pressure is creating short-term opportunities for bearish plays as the downward trend is technically confirmed.

Traders should watch the upcoming meeting between the US and Chinese presidents on Thursday, as any positive headlines could extend this sell-off. With the price currently below key short-term moving averages, selling rallies towards the $4,050 resistance area or buying put options could be a viable strategy. The market is clearly favoring riskier assets, and gold is feeling the immediate impact.

Federal Reserve’s Impact

However, the Federal Reserve’s interest rate decision on Wednesday presents a significant counterforce. A rate cut is already priced in, but a particularly dovish statement from Chair Powell could easily reverse the recent downtrend. This makes holding short positions through the announcement risky, so traders might consider buying call options to bet on a rebound driven by the Fed.

Volatility is expected to be extremely high this week, so strategies that profit from large price swings, like straddles, could be effective. Key levels to watch are the support zone around $3,890-$3,900, which has held so far. A firm break below this level could trigger a much deeper slide towards $3,800 in the coming weeks.

To add context, the ongoing US government shutdown is now in its 35th day, matching the longest shutdown from back in 2018-2019, which provides a floor for gold prices. Furthermore, the latest CPI data from October 15th showed core inflation holding at 3.1%, supporting the case for gold as an inflation hedge. Last week’s data from the World Gold Council also showed a net outflow of 1.2 million ounces from gold-backed ETFs, confirming the recent profit-taking.

Looking back, we saw a similar pattern in late 2024 when trade optimism caused a sharp pullback, only for the metal to rebound after the Fed reaffirmed its easing policy. The long-term outlook remains constructive, with central banks continuing to buy and analysts forecasting higher prices into 2026. Therefore, this dip may represent a strategic entry point for those with a longer-term bullish view.

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