Gold Market Faces Pressure from Strong Dollar and Fed Policy
Gold prices experienced a substantial decline on Monday, falling more than 1% as investors grappled with a strengthening US dollar and diminishing expectations for an immediate interest rate cut from the Federal Reserve. The precious metal's drop came as market participants awaited crucial economic data releases that had been delayed due to the recent US government shutdown.
Spot gold dropped 1.5% to $4,019.12 per ounce by 03:13 p.m. ET (20:13 GMT), while US gold futures for December delivery settled 0.5% lower at $4,074.5 per ounce. The dollar index's upward movement made dollar-priced bullion more expensive for investors holding other currencies, adding further pressure to gold markets.
Economic Data Deluge and Fed Watch
David Meger, director of metals trading at High Ridge Futures, noted that the market is experiencing "some back and forth choppy action ahead of what is expected to be a release of a deluge of economic data now that the U.S. government has reopened." He emphasized that reduced expectations for additional Federal Reserve rate cuts have dented optimism for gold in the current market environment.
This week's economic calendar includes several critical releases that could influence the Fed's policy direction. Market participants are particularly focused on September jobs data scheduled for Thursday and the minutes from the Fed's last meeting, where policymakers implemented a 25 basis point rate cut, due for release on Wednesday.
Shifting Rate Cut Probabilities and Analyst Views
The probability of a December rate cut has seen a dramatic shift in recent days. According to the CME FedWatch tool, traders are currently pricing in only a 41% chance of a 25-basis-point rate cut in December, significantly down from more than 60% probability last week. This rapid change in market sentiment reflects comments from several Fed policymakers who have maintained a hawkish stance regarding future rate cuts.
Fed Vice Chair Philip Jefferson reinforced this cautious approach, stating that the US central bank needs to "proceed slowly" with any additional interest rate reductions. The central bank aims to ease policy toward a level that would likely stop putting downward pressure on inflation without triggering economic instability.
Analysts at Scotiabank provided longer-term projections, estimating gold prices at $3,800 per ounce for 2026 compared with $3,450 per ounce this year. They cited uncertain economic conditions and an eventual decline in real interest rates as factors supporting their forecast.
In other precious metals trading, spot silver dropped 1.2% to $49.94 per ounce, platinum fell nearly 1% to $1,526.45, and palladium dipped 0.4% to $1,379.02. The broader precious metals complex followed gold's downward trend amid the shifting macroeconomic landscape.
