Gold (XAU/USD) is showing a modest rebound from $4,100—a two-month low hit earlier on Tuesday—but upside appears limited. The US dollar has paused after a rapid run from September lows, providing some support to the precious metal. In addition, a lower probability of an October Fed rate hike also favors gold. Nevertheless, the overall fundamental backdrop remains tilted toward the bears and indicates that the path of least resistance for this asset is still downward.

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US macro releases last week showed slowing inflation and some cooling in the labor market. Oil prices also remain near four-week lows: steady exports from the Middle East and G7 decisions to tap strategic reserves have eased supply-shortage fears, significantly reducing pressure on the Federal Reserve to raise rates. Still, traders continue to price in more than an 85% chance of another Fed rate increase before year-end.

Expectations for further Fed hikes persist despite weaker employment data. Deutsche Bank economists note that, while recent nonfarm payrolls disappointed, the labor market overall looks relatively resilient, especially when considering ADP and unemployment claims data. On that basis the bank's analysts forecast two more 25-bp hikes over the coming quarters. Deutsche Bank also points out that markets are pricing rate increases over the next 12 months.

Other factors, such as ongoing geopolitical uncertainty and high US sovereign yields, are likely to limit any corrective decline in the dollar from the monthly high printed on Monday (the highest level since April 2025), and that caps gold's upside.

On Middle East developments, Yemen's Houthi group, backed by Iran, reported military operations against targets in Saudi Arabia. There are also reports of a planned Israeli strike on Iran, increasing the risk of further escalation.

Worsening of France's budget crisis has contributed to a prolonged rout in fixed income markets there, which helps keep US Treasury yields elevated and adds further pressure on gold. For these reasons the most likely scenario for gold remains to the downside. However, bears may prefer to wait for additional signals on the Fed's intentions before opening fresh XAU/USD positions in the hope of resuming the fall from the August peak.

For better trading opportunities it is advisable to wait for the FOMC minutes due on Wednesday. Speeches by FOMC members and geopolitically relevant news will also be key drivers for the dollar and for gold prices.

Given the fundamental picture outlined above, XAU/USD could break the lower boundary of the range it has traded in over the past week.

From a technical viewpoint, oscillators are negative, confirming the bears' advantage in the market. Support sits at $4,100; resistance is the 9-day EMA and the round level of $4,200.