Gold consolidates below $4,000 as bullish momentum cools after an overextended rally

Gold (XAU/USD) holds firm on Friday following a sharp pullback the previous day after retesting Wednesday’s all-time high of $4,059. At the time of writing, XAU/USD is hovering around $3,985, as bulls struggle to extend gains beyond the $4,000 psychological mark.

The pullback from record highs was largely driven by profit-taking and easing geopolitical risk following a US-brokered Gaza peace deal. The development reduced some of the geopolitical tensions, prompting investors to lock in gains.

The broader trend continues to favor the upside as investors seek refuge in Gold amid global economic and political uncertainty, coupled with a dovish Federal Reserve (Fed) outlook. Persistent geopolitical risks, including the protracted Russia-Ukraine conflict, and concerns over the ongoing US government shutdown underpin the metal’s safe haven appeal.

At the same time, steady central bank buying and robust inflows into Gold-backed ETFs help sustain the metal’s record-breaking rally, keeping it on track for an eighth consecutive weekly gain.

Market movers: Gold steadies as softer US Dollar, Gaza peace deal and US shutdown shape sentiment

• The preliminary University of Michigan Consumer Sentiment Index came in at 55.0 in October, slightly above the 54.2 forecast but down marginally from 55.1 in September. The Consumer Expectations Index softened to 51.2 from 51.7. Inflation expectations were little changed. The 1-year inflation outlook eased to 4.6% from 4.7% in September, while the 5-year measure remained steady at 3.7%.
• Gold struggles to recover despite the US Dollar (USD) trading slightly weaker, and traders buy the dip following Thursday’s 1.59% decline, the metal’s biggest intraday fall since mid-August. The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, is trading around 99.35, near two-month highs and on track for its biggest weekly gain of the year.
• Bullion’s rally this year signals rising investor distrust in the global fiscal and monetary order, says Ajay Rajadhyaksha, Barclays’ Global Chairman of Research. “The debt loads of four major economies — the US, the UK, France, and Japan — are all over 100% of their respective GDP, while their fiscal profiles are still worsening,” he notes. “Most importantly, there is virtually no political appetite for fiscal consolidation,” Rajadhyaksha adds, warning that the yellow metal’s recent rally despite healthy financial markets should alert policymakers.
• The US government shutdown, entering its tenth day, is beginning to cast a heavier shadow over the near-term economic outlook. With the labor market already showing signs of cooling, an extended shutdown could further weigh on employment conditions and business sentiment, reinforcing expectations that the Fed will deliver 25-basis-point (bps) interest rate cuts at each of its remaining meetings this year.
• Israel and Hamas formally approve the first phase of the Gaza peace deal, under which Israel will begin withdrawing troops and Hamas will release the remaining hostages.

Technical analysis: XAU/USD stalls below $4,000 after defending key $3,950 support

Gold is attempting to recover after testing the $3,950 support zone. The metal is now challenging the $3,995-$4,000 resistance area, which coincides with the 21-period Simple Moving Average (SMA).

If bulls manage to sustain momentum above $3,980, further upside toward the $4,020–$4,030 region appears likely, opening the door for a potential retest of the all-time high and possibly new record territory.

However, failure to secure a break above the $4,000 psychological barrier could trigger a short-term pullback toward immediate support at $3,950, followed by the 50-period SMA around $3,933 and deeper losses toward $3,900. The Relative Strength Index (RSI) is currently around 53, indicating neutral momentum with room for either side to take control in the near term.