Gold experienced its most significant weekly decline since early October, as a combination of shifting central bank policy, a strengthening U.S. dollar, and rising Treasury yields dampened investor enthusiasm for the precious metal. The non-yielding asset faced considerable pressure after the Federal Reserve indicated that future interest rate cuts are not a certainty.
The price of gold settled at $4,002.81 per ounce, marking a weekly loss of $111.31, or 2.71%. This downturn reflects a sharp reversal in market sentiment, which had previously anticipated more aggressive easing from the U.S. central bank.
Key Takeaways
- Gold recorded its sharpest weekly loss since early October, falling 2.71% to close at $4,002.81.
- The Federal Reserve's recent policy announcement and hawkish commentary from Chair Jerome Powell were primary drivers of the decline.
- Market expectations for a December rate cut dropped from over 91% to 63% following the Fed's meeting.
- A strengthening U.S. Dollar Index and rising 10-year Treasury yields added significant pressure on the non-yielding metal.
- Traders are now closely watching upcoming economic data, including employment reports and consumer sentiment, to gauge the Fed's next move.
Federal Reserve's Hawkish Stance Shakes Markets
The primary catalyst for gold's sell-off was the Federal Reserve's policy announcement last Wednesday. While the central bank delivered an expected 25-basis-point interest rate cut, the accompanying commentary from Chair Jerome Powell caught many investors off guard. Powell emphasized that further monetary easing was not guaranteed, highlighting a growing division among policymakers regarding the future path of interest rates.
This cautious tone led to a rapid repricing of market expectations. According to data from the CME FedWatch Tool, the probability of another rate cut in December plummeted from a near-certain 91.1% at the start of the week to just 63% by Friday. This shift signaled that investors are now less confident in the Fed's willingness to provide additional support to the economy.
Further pressure came from public statements by Fed officials. Cleveland Fed President Beth Hammack revealed she had opposed the recent cut, citing concerns over persistent inflation and the need for policy to remain restrictive. Her comments reinforced the idea that the consensus for easing is fracturing within the Federal Open Market Committee (FOMC).
Why Fed Policy Matters for Gold
Gold is a non-yielding asset, meaning it does not pay interest like a bond or a savings account. When interest rates rise, yield-bearing assets like U.S. Treasuries become more attractive, drawing capital away from gold. Conversely, when the Fed cuts rates, the opportunity cost of holding gold decreases, typically boosting its appeal.
A Resurgent Dollar and Rising Yields Add Pressure
The Fed's revised outlook had an immediate and powerful effect on other key financial markets, creating a difficult environment for gold. The U.S. Dollar Index, which measures the greenback's strength against a basket of other major currencies, rallied significantly.
The index closed the week at 99.716, an increase of 0.79%, after touching a three-month high of 99.884. A stronger dollar makes gold, which is priced in dollars, more expensive for international buyers, often leading to reduced demand.
Dollar's Dominance
The U.S. Dollar Index is on a clear upward trajectory. Technical analysts note that its next major resistance level is around 100.257, and a break above that could signal further gains, potentially intensifying the headwinds for gold prices.
Simultaneously, U.S. Treasury yields moved higher. The yield on the benchmark 10-year note rebounded from a low of 3.936%. Analysts are now watching the mid-September high of 4.199% as a key level. A sustained move above this point could push yields toward the 52-week average of 4.331%, further diminishing gold's attractiveness relative to fixed-income investments.
Investor Sentiment Shifts Away from Safe Havens
Beyond the macroeconomic pressures, a general improvement in risk appetite also contributed to gold's decline. Positive remarks from President Trump regarding trade negotiations suggested a potential de-escalation in ongoing disputes. The proposal to roll back certain tariffs in exchange for specific actions from China buoyed equity markets.
As stocks rallied on the news, investors rotated capital out of defensive, safe-haven assets like gold and into riskier assets with higher growth potential. This was reflected in a softening of demand for gold-backed exchange-traded funds (ETFs), which had been a significant source of support for the metal in previous months.
While physical demand and central bank purchases provided some underlying support, they were not sufficient to counteract the broader shift in market sentiment. The lack of a strong bid last week suggests that many large investors have adopted a more cautious stance, waiting for clearer signals before committing new capital.
Technical Levels and Key Data to Watch
From a technical perspective, gold is now at a critical juncture. The price found some support after hitting a low of $3,886.46 early in the week, which is just above a key retracement zone between $3,846.50 and $3,720.25. The bounce back to close above the $4,000 mark suggests that some buyers are stepping in at these lower levels.
However, the sustainability of this support depends heavily on upcoming economic data. Market participants will be closely scrutinizing several key releases this week:
- ADP National Employment Report: This report, due on Wednesday, will provide an early look at the health of the U.S. labor market.
- University of Michigan Sentiment Index: Released on Friday, this index will offer insights into consumer confidence and inflation expectations.
A weak reading from either of these reports could revive expectations for a December rate cut, potentially providing a floor for gold prices. Conversely, strong data would likely reinforce the Fed's hawkish stance, keeping the dollar and yields elevated and placing further pressure on gold. If current support levels fail to hold, analysts see a potential test of the $3,720.25 level, with a deeper slide toward $3,500.20 possible under a more bearish scenario.
