05.11.202515:00 Forex Analysis & Reviews: Gold faces ultimatum

A strong dollar and an overly cautious Federal Reserve are the recipe for a plunge in gold prices at the end of October. This decline began with the unwinding of excessively inflated speculative positions and continued with the market reassessing expectations for a federal funds rate cut in 2025. Before the last FOMC meeting, the chances for a rate cut exceeded 90%, only to collapse to 65%. The only rebound to 74% amid hopes for the imminent end of the shutdown allowed XAU/USD to enter a consolidation phase.

Despite losing about 10% of its value from record highs, gold has still risen by over 50% since the beginning of the year. The rally of the precious metal this year has been driven by hedging against geopolitical uncertainty, high government debt, and a weakening US dollar. Support for XAU/USD has come from central banks that continue to buy bullion.

Dynamics of gold buying by central banks

Unfortunately, their activity is gradually decreasing. According to the World Gold Council (WGC), after a disappointing second quarter, central banks acquired 28% more gold in the third quarter, amounting to 220 tons. From January to September, the total reached 634 tons. The WGC forecasts that this figure will grow to 750-900 tons by the end of 2025, while purchases exceeded 1,000 tons annually from 2022 to 2024.

The conclusion of the armed conflict in Gaza has lowered the level of geopolitical tension, negatively impacting the entire precious metals sector. Indeed, positive news from Israel became the trigger for sell-offs.

Dynamics of precious metals

Another consideration — concerns over the excessively inflated US national debt — no longer supports gold as strongly as before. The White House is set to collect around $400 billion in tariff revenue, which theoretically could reduce the budget deficit. In practice, however, this mechanism may hang by a thread. The Supreme Court is set to hear an appeal regarding the legality of tariffs on imports. A defeat for Donald Trump would mean a return of funds, negatively impacting the US economy and dollar. Conversely, the precious metal could rise from the ashes.

According to TD Securities, the consolidation of XAU/USD within the $3,800-$4,050 range appears logical given investors' reevaluation of the trajectory of federal funds rates and concerns over retail sales in China due to the cancellation of the value-added tax offset rule. However, the main drivers of gold's rally remain intact, suggesting that after breaking out of a relatively narrow trading range, it could restore its uptrend.

HSBC, Bank of America, and Societe Generale agree with this sentiment. They have not revised their "bullish" forecasts for the precious metal, which they predict will reach the psychologically significant mark of $5,000 per ounce.

Technical analysis

Technically, the daily chart for gold shows consolidation within an uptrend. A breakout below the lower border near $3,915 would trigger sell signals. Conversely, a successful test of resistance at $4,045 per ounce would provide a compelling reason to plan long positions.