Gold price forecast: XAU holds near $4,130 after sharpest drop in four years

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Gold sharpest drop in years

Highlights

- Gold stabilizes near $4,130 after a 5% correction, its steepest since 2021.

- Profit-taking and easing trade tensions trim safe-haven demand.

- Support seen near $4,020–$4,040, with $4,370 acting as key resistance.

Softer physical buying in India and optimism around U.S.–China trade progress further pressured prices, though the broader trend remains supported by expectations of U.S. rate cuts and ongoing fiscal uncertainty.

Technical setup signals cooling momentum

From a chart perspective, gold has entered a consolidation phase following an extraordinary rally that pushed prices up nearly 60% this year. The recent decline pulled bullion back inside its Bollinger Bands, with the upper band near $4,371 now acting as resistance. On the downside, the 20-day EMA around $4,038 and the middle Bollinger line near $4,020 mark the immediate support zone. A break below these levels could extend the correction toward the 50-day EMA at $3,806, coinciding with the September breakout base.

XAU price dynamics (Source: TradingView)

Momentum indicators suggest a pause rather than a reversal. The RSI has cooled from overbought territory, showing that gold may continue to consolidate in the near term. As long as the metal remains above the rising 50-day average, the broader structure favors buyers on dips. Still, volatility could persist around key macroeconomic events as traders reassess positions after the sharp sell-off.

Trade optimism tempers safe-haven appeal

The latest correction reflects a rotation away from defensive assets as markets welcomed signs of progress in U.S.–China trade talks. President Trump’s softened tone on tariffs and Treasury Secretary Scott Bessent’s meetings with Chinese officials have raised hopes for a de-escalation ahead of the November 1 deadline. This shift in tone has reduced short-term demand for gold as a hedge, while India’s physical market has also cooled following the seasonal buying surge.

Despite that, the macro backdrop continues to favor gold in the medium term. The Federal Reserve is widely expected to cut interest rates twice before year-end, lowering the cost of holding non-yielding assets. Meanwhile, the ongoing U.S. government shutdown and fiscal delays are adding layers of uncertainty that reinforce gold’s safe-haven status.

Traders are now focused on Friday’s U.S. September CPI report, with forecasts pointing to a 3.1% annual rise in both headline and core inflation. A stronger print could push the dollar higher and add short-term pressure on gold, while a weaker reading would strengthen expectations of a dovish Fed and potentially reignite the rally toward the $4,370–$4,500 zone.

Outlook

As previously discussed, gold’s longer-term outlook remains constructive despite the current cooling phase. The $4,020–$4,040 area serves as the immediate floor, while the $4,370 ceiling stands as the next key hurdle for the bulls.

Unless prices fall decisively below $4,000, corrections are likely to be seen as healthy pauses within a broader uptrend driven by policy uncertainty, global risk hedging, and central bank demand.

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