Gold sinks as trade optimism and US Dollar strength fuel broad profit taking

Gold (XAU/USD) drifts lower on Tuesday after retesting its record high near $4,380 on Monday. The pullback comes as the US Dollar (USD) extends its recovery gains and traders lock in profits following an overextended rally. At the time of writing, XAU/USD is trading around $4,135, down nearly 5% after briefly slipping to $4,081 earlier in the day.

An improved risk appetite is weighing on the Bullion as investors show cautious optimism amid hopes of easing trade tensions between the United States (US) and China. Increasingly positive headlines have fueled expectations that the 100% tariffs US President Donald Trump threatened to impose on all Chinese imports from November 1 may ultimately be avoided. The softer tone has lifted risk assets and added to the Greenback’s recent strength. Even so, uncertainty lingers, given Trump’s unpredictable rhetoric and the fragile nature of ongoing negotiations.

Nevertheless, the broader outlook for Gold remains constructive despite the pullback. Expectations of a dovish monetary policy shift by the Federal Reserve (Fed) continue to underpin the metal’s appeal, as lower interest rates reduce the opportunity cost of holding non-yielding assets. Meanwhile, the ongoing US government shutdown and lingering geopolitical and economic risks help maintain safe haven flows.

Market movers: Trade optimism and Fed cut expectations shape market tone

• President Donald Trump struck a cautiously optimistic tone on Monday, saying he expects a “really fair and really great trade deal” with China after meetings at the APEC Summit in South Korea later this month. However, he warned that potential 155% tariffs could take effect on November 1 if no agreement is reached.
• The US and Australia signed an $8.5 billion critical minerals agreement on Monday at the White House during a meeting between President Trump and Prime Minister Anthony Albanese, aimed at reducing China’s dominance in rare-earth supply chains.
• The US government shutdown entered its fourth week on Monday with no clear end in sight, forcing furloughs across several key agencies. However, White House Senior Adviser Kevin Hassett told CNBC he expects the shutdown to end “sometime this week."
• The Greenback strengthens against all major counterparts. The US Dollar Index (DXY), which tracks the Greenback's value against a basket of six major currencies, is hovering around one-week highs near 98.84, extending gains for the third straight day.
• The US economic calendar remains relatively light this week, with focus on Friday’s Consumer Price Index (CPI) release, delayed earlier by the government shutdown. The data comes just days before the October 29-30 monetary policy meeting and may influence rate cut expectations. According to the CME FedWatch tool, markets are pricing in a 98.9% probability of a 25-basis-point (bps) rate cut this month.

Technical analysis: XAU/USD double top pattern signals potential correction

XAU/USD appears to have carved out a double top pattern on the 4-hour chart, with relatively equal highs around $4,380, indicating possible exhaustion in the recent uptrend. The metal has broken decisively below the 21-period Simple Moving Average (SMA), which now flips into immediate resistance if bulls attempt a rebound.

The short-term outlook tilts bearish, with initial support aligned at $4,200, marking the neckline of the double top. A sustained break below this area would confirm a near-term bearish reversal, exposing the 50-period SMA around $4,180 as the next cushion. Further downside could extend toward the $4,050 zone, where the 100-period SMA offers a stronger support confluence.

The Relative Strength Index (RSI) also adds to the cautious tone, pointing lower and exhibiting bearish divergence relative to price. A drop below the 50 threshold on the RSI strengthens the case for a deeper corrective pullback.