The gold market’s record-breaking rally hit a significant speed bump last week. After a stunning nine-week ascent, Spot Gold (XAU/USD) closed at $4114.12, shedding $139.85 (3.29%) and forming a critical technical pattern known as a weekly closing price reversal top. This development suggests the relentless bullish momentum may be exhausting, setting the stage for a potential multi-week correction as the Federal Reserve’s rate-cut timeline comes into sharper focus.
The reversal pattern is particularly notable because it occurred just after gold tagged a fresh all-time high of $4381.44. While this formation doesn’t automatically signal a long-term trend reversal, confirmation via follow-through selling this week would strongly indicate a shift in short-term sentiment. The primary driver of the recent surge—aggressive pricing of Fed rate cuts and robust central bank demand—remains intact, but the technical picture now warns that prices may need to cool off before the next leg higher.
Dovish CPI Fails to Ignite Rally, Revealing Underlying Weakness
Paradoxically, the selling pressure intensified despite a gold-friendly inflation report. The latest U.S. Consumer Price Index (CPI) data came in softer than expected, with the core reading rising just 0.2% month-over-month. This solidified market expectations for a 25-basis-point rate cut at the Fed’s upcoming meeting, a sentiment widely tracked by the CME FedWatch Tool from the CME Group, which provides real-time probabilities for FOMC rate decisions.
However, gold’s inability to rally on this ostensibly bullish news is a telling sign. Instead, capital flowed into risk assets like equities, buoyed by the soft inflation print and renewed optimism in global trade. Concurrently, a modest rebound in the U.S. Dollar and Treasury yields applied additional pressure. This price action implies that bullish positions were stretched, and the “buy the rumor, sell the news” dynamic took hold, with traders booking profits into strength.
The Fed’s Pivot: From Inflation Fighting to Preserving the Labor Market
The fundamental narrative for gold has subtly shifted. The Fed’s impetus for easing is now less about taming inflation and more about insulating the economy from a slowing labor market. As noted in recent analyses by Reuters, recent non-farm payroll data has shown a marked deceleration, with significant downward revisions to previous months. Fed Chair Jerome Powell has framed the impending cuts as a “risk management” exercise—a preemptive strike to sustain the employment boom.
This overarching dovish pivot remains a structurally positive backdrop for non-yielding assets like gold in the long run. In the immediate term, however, the market is digesting these expectations. The key question for traders is whether the Fed will signal a clear path for continued easing beyond October. Any hint of hesitation from Powell could extend gold’s corrective phase.
XAU/USD Technical Forecast: Key Support Levels in Focus
With the reversal top in play, the technical outlook turns cautiously bearish for the short term. A confirmed breakdown this week would open the path for a 2 to 3-week correction.
-
The initial major target sits at $3846.50, a key technical support level.
-
A deeper retracement could see gold test the 61.8% Fibonacci retracement level near $3720.25, a zone that would likely attract strong buyer interest.
For the bullish trend to regain its footing, buyers must defend these support zones vigorously. Until these lower levels are tested or the Fed delivers an unexpectedly forceful dovish message, gold remains vulnerable to further profit-taking. The current setup is not a story of a broken bull market, but rather one of a necessary and healthy cooldown after a historic run.
