Gold Falls Below $4,000 as Market Focuses on Fed and September PCE After Consecutive Adjustments

TradingKey - As of the Asian trading session on October 26, gold prices (XAUUSD) extended their weakness. Spot gold opened at $4,002.98 per ounce, then broke below the $4,000 round-number mark, hitting an intraday low of $3,977.95. Previously, gold closed at $3,997.73 last Friday after touching a low of $3,975.48, a near three-month low, confirming a breakdown below the key psychological support level of $4,000.

From recent trends, the magnitude of gold's pullback has expanded significantly. Last Friday, spot gold closed below $4,000 for the first time since mid-July, declining 3.99% for the week and marking its largest weekly drop since June. Entering this week, although gold prices briefly rebounded to $4,004.30, they failed to hold firmly above $4,000 and subsequently fell back to around $3,990. This means that with the loss of $4,000, this level has gradually shifted from a previous support zone into short-term resistance.

The persistent pressure on gold recently is primarily related to the resurgence of U.S. inflation and Fed rate expectations. International oil prices rose significantly last week, with Brent crude briefly breaking above $117. Coupled with previously released U.S. CPI and PPI data showing that inflationary pressures remain at high levels, market expectations for a short-term dovish pivot by the Fed have cooled.

According to the CME FedWatch Tool, the market currently expects a probability of about 78% for another Fed rate hike in December. High interest rate expectations mean an increased opportunity cost of holding non-yielding gold, which also limits the rebound space for gold prices after consecutive declines.

At the same time, this round of gold price adjustment was also influenced by technical and liquidity factors. Last week's decline in tech stocks put some highly leveraged investors under margin pressure, prompting liquidations of highly liquid assets like gold to replenish cash. After gold prices successively broke below key levels such as $4,100 and $4,000, stop-loss orders and profit-taking increased further, amplifying short-term price fluctuations.

Gold Price Daily Chart, Source: TradingView

In the short term, after gold prices confirmed a breakdown below $4,000, the market is first focusing on last week's low near $3,975; if it falls further, the next stage may test the area around $3,960. On the upside, gold needs to re-establish a firm footing above $4,000 to $4,025 to alleviate current weakness. The Fed will hold its rate-setting meeting from October 27 to 28 this week, and the U.S. will also release PCE inflation data on October 29; these two events will serve as key variables for the next phase of gold price trends.