Gold finally took a breather and it wasn’t a small one.
After weeks of parabolic gains, XAU/USD fell over 5.5% on Tuesday, dropping more than $200 from Monday’s record high of $4,380. For context, that’s gold’s largest single-day decline since 2020.
And yet, the sentiment isn’t entirely bearish. Most traders are calling it what it looks like, a shakeout, not a collapse.
I’ve seen this pattern countless times: gold rallies too fast, the RSI overheats, and the market hunts for liquidity before another leg higher.
Here’s what you need to know:
1. Traders Take Profits Ahead of CPI
Gold’s selloff didn’t happen in isolation. With the U.S. Consumer Price Index (CPI) report due Friday, October 24, many were quick to lock in profits after a record-breaking run.
The U.S. Dollar Index (DXY) clawed back above 98.90, its strongest level this month, making gold more expensive for non-dollar buyers.
And let’s not forget, this week’s CPI data is crucial. The government shutdown delayed most key releases, so markets are starving for fresh clues on inflation and the Fed’s next move.
2. Fed Cut Hopes Still Intact
Despite Tuesday’s flush, gold’s macro backdrop hasn’t changed.
The Federal Reserve is still expected to cut rates twice before year-end, according to CME FedWatch, with almost 99% chance of another move in October.
That’s why the dip might attract bargain hunters, lower rates reduce the opportunity cost of holding gold, keeping the long-term bias bullish.
3. Technical Picture: Still a Healthy Uptrend
Looking at the chart, gold is now testing support near $4,100, sitting just above the 20-day SMA and the former breakout zone.
Below that, $4,000 marks the next line of defense, while $4,380 remains the ultimate resistance to beat.
The uptrend is still alive. The recent rejection at highs looks more like a reset than a reversal, especially since price remains comfortably above the 50 and 200-day moving average.
4. Geopolitics Still Fuel the Bid
Trade and political tension remain the silent tailwind.
Trump’s back-and-forth with China from a 100% tariff threat to talks of a “good deal” adds uncertainty. Combine that with a still-unresolved U.S. government shutdown, and gold’s safe-haven appeal stays strong even after the plunge.
Here’s my takeaway
Tuesday’s drop was brutal, sure.. but every strong uptrend has to breathe.
I wouldn’t call this the end of gold’s run, just a reminder that even record rallies have limits.
As long as price holds above $4,000, the bigger picture remains bullish and traders waiting for a cleaner entry might finally get their chance.