Gold may have lost some of its shine recently, but its bull run is far from over.
The yellow metal’s rise was unprecedented, both in the pace and the extent, pushing momentum to the highest levels in years. The Relative Strength Index (RSI) on the monthly chart hit 92 in October, while the RSI on the weekly chart touched 87. RSI levels above 70 are generally considered overbought, but RSI levels above 90 are often warning signs of an imminent pullback.
FOMC October: 25 bps Cut, December Odds Eased (~69%)
The catalyst for the correction appears to be the October Federal Reserve Open Market Committee (FOMC) meeting. Federal Reserve Chair Jerome Powell cautioned against assuming that a December interest rate cut was a foregone conclusion. Odds of a December Fed rate cut have shrunk to around 69% from over 86% before the October FOMC meeting. The Fed cut its benchmark interest rate in October by 25 basis points to 3.75%-4.0%.
Spot Gold (XAUUSD; Weekly)
At the September FOMC meeting, Fed officials had projected three more rate cuts in the coming months – two rate cuts this year (October and December) and one rate cut in 2026. As a result, markets were pricing in near certainty of two rate cuts this year. However, the uncertainty regarding a rate cut next month has pushed US Treasury yields and the US dollar higher and precious metals lower. Higher interest rates reduce the opportunity cost of holding the non-yielding yellow metal.
Equities, sentiment, and year-end positioning
Furthermore, concerns regarding overvaluation in US equities and the prolonged US government shutdown have weighed on sentiment. The Bank of England and the International Monetary Fund have warned of an AI bubble, while Goldman Sachs and Morgan Stanley have warned of a correction in equities. A dramatic run in equities since April, coupled with doubts regarding continued easier monetary policy, has probably provided an excuse for year-end position adjustments.
Spot Gold (XAUUSD; Daily):
Technical picture: key levels to watch
On technical charts, spot gold has immediate support at the end-of-October low of 3885. Any break lower could open the way toward strong support on the 100-day moving average – it hasn’t broken below the average since 2023. The converged support 3885 includes the April high and a rising trendline from early 2025.
From a fundamental perspective, steady central bank buying and concerns regarding US debt levels are likely to underpin the demand for safe-haven gold, potentially limiting the downside in gold prices. Diversification of central banks’ reserves into gold has steadily increased over the years. Worries regarding US budget deficits have prompted investors to look at alternative safe-haven assets compared to US Treasuries.
FAQ
What are the odds of a December rate cut now?
They eased to roughly 69% after the October FOMC, down from over 86% beforehand.
Why did gold pull back after such a strong run?
Momentum readings were extreme (RSI ~92 monthly and ~87 weekly), which often precede corrective moves even within an uptrend.
How do yields and the US dollar affect gold?
Higher US Treasury yields and a firmer dollar raise gold’s opportunity cost, typically pressuring prices in the short term.
What key technical levels are in focus?
Immediate support is near 3885; a break could test the 100-day moving average, which hasn’t been breached since 2023.
