Gold reclaimed $4,100. Tuesday’s CPI test decides if it holds

Gold (XAU/USD) starts the week on a positive note, reclaiming the $4,100 psychological level as the US Dollar (USD) retreats from its recent highs. The precious metal recovers from Friday's losses, although investors remain cautious ahead of Tuesday's US Consumer Price Index (CPI) report, which could determine the next direction for Bullion.

The rebound follows a period of sustained selling pressure, with Gold struggling to regain bullish momentum amid expectations of tighter monetary policy from the Federal Reserve (Fed). While easing geopolitical tensions and declining Oil prices are providing some relief, the recovery faces a significant test as markets prepare for the latest US inflation figures.

Gold rebounds, but the Fed remains a major obstacle

Gold's recovery comes despite a surprisingly strong US labor market report, which reinforced expectations that the Fed could raise interest rates again before the end of the year. The US economy added 165K jobs in October, substantially exceeding expectations of 65K. September's employment gains were revised upward to 60K from 29K, while the Unemployment Rate declined to 4.1% from 4.2%. These figures suggest that the US economy remains resilient despite restrictive monetary conditions, giving policymakers additional room to maintain their fight against inflation.

According to the CME FedWatch Tool, markets currently assign approximately an 80% chance to a 25-basis-point interest rate increase in December.

Commerzbank emphasizes that the Fed's previous projections already indicated a strong preference for additional tightening, noting that “of the 18 Fed officials who submitted projections for the appropriate path of interest rates in September, 16 anticipated at least one more rate hike this year.” This outlook remains challenging for Gold, which does not generate interest income and generally becomes less attractive when US Treasury yields rise.

Nevertheless, the US Dollar is retreating as investors reassess geopolitical risks. US President Donald Trump has signaled reluctance to escalate military operations against Iran while diplomatic negotiations continue, contributing to lower Oil prices and easing concerns about energy-driven inflation. Renewed optimism surrounding US-China trade relations also supports market sentiment. China's decision to extend the suspension of additional tariffs on US imports reinforces hopes of reduced trade tensions.

However, these developments may provide only temporary support for Gold if upcoming inflation figures strengthen expectations of further monetary tightening.

US CPI: The decisive test for Gold's recovery?

Tuesday's US inflation report represents the main event for Gold traders, particularly after the strong employment figures reduced concerns about a deterioration in labor market conditions. Headline CPI is expected to increase 0.3% MoM in October, compared with September's 0.6% rise. Core CPI, which excludes volatile food and energy prices, is forecast to advance 0.2%, slowing from 0.3% previously.

However, softer inflation may not automatically translate into a more accommodative Fed. Deutsche Bank “continue[s] to expect 25bp rate increases at the December and March FOMC meetings, absent a further material tightening in financial conditions.” This distinction is particularly important for Gold. A modest slowdown in inflation could already be reflected in market expectations, limiting the precious metal's potential gains.

Conversely, a stronger-than-expected CPI reading, particularly in the core component, could reinforce expectations of a December rate hike, supporting the US Dollar and Treasury yields while putting renewed pressure on Bullion. A significant downside surprise, especially in the monthly core reading, could challenge the prevailing monetary policy outlook and encourage a more sustained Gold recovery.

The reaction will, therefore, depend not only on the inflation figures themselves but also on whether they meaningfully change expectations for the Fed's next decisions.

The support zone holds the key

Gold's (XAU/USD) daily chart reveals a fragile technical structure despite the latest recovery attempt. The precious metal remains below its 100-day Simple Moving Average (SMA) at approximately $4,206 and its 200-day SMA near $4,480, suggesting that the broader bearish pressure has not yet disappeared.

The $4,100-$3,870 area represents a major support zone that has repeatedly influenced price action. A sustained recovery above $4,100 would be an encouraging first signal for buyers, although a break above the 100-day SMA near $4,206 would be needed to reinforce the bullish scenario. Beyond that level, the 200-day SMA around $4,480 represents another significant obstacle.

Meanwhile, the daily Relative Strength Index (RSI) stands near 35, reflecting persistent bearish momentum without indicating deeply oversold conditions.

If the CPI report strengthens the US Dollar and pushes Gold below $3,870, the precious metal could face renewed selling pressure, potentially opening the door to a deeper correction. Conversely, softer inflation combined with declining Treasury yields could help Gold consolidate above $4,100 and gradually rebuild bullish momentum.

Ultimately, Tuesday's inflation report could determine whether Gold's recovery marks the beginning of a more sustainable rebound or merely a temporary pause in the broader correction.