Gold markets witnessed significant turbulence on Friday as prices plummeted by 3% following hawkish commentary from U.S. Federal Reserve officials, casting doubts on anticipated December interest rate reductions.
Market Plunge Details
Spot gold declined by 1.9% to settle at $4,092.72 per ounce as of 02:33 p.m. ET, after experiencing an even steeper drop exceeding 3% during trading hours. Despite this sharp daily decline, the precious metal managed to maintain a weekly gain of 2.3%, highlighting the volatile nature of recent trading sessions.
U.S. gold futures for December delivery mirrored this downward trend, closing 2.4% lower at $4,094.20. The simultaneous decline across both spot and futures markets indicated broad-based selling pressure affecting the entire gold sector.
Federal Reserve Impact on Gold Markets
David Meger, director of metals trading at High Ridge Futures, explained the market dynamics: "The reduced probability of a Federal Reserve rate cut in December is significantly impacting momentum in gold and silver markets." This sentiment echoed throughout trading floors as investors recalibrated their expectations.
The CME Group's FedWatch tool revealed a notable shift in market expectations, with probabilities for a 25 basis-point rate reduction next month falling to approximately 46% from 50% earlier in the week. This recalibration directly affected gold's appeal, particularly because non-yielding gold typically performs better during low-interest-rate environments.
Broader Market Consequences
Equity markets globally experienced substantial declines following the Federal Reserve's cautious signals. The situation was compounded by the recently concluded longest U.S. government shutdown, which created significant data gaps that left both the Fed and market participants operating with limited information ahead of next month's critical policy meeting.
Fawad Razaqzada, market analyst at City Index and FOREX.com, provided additional insight: "During margin calls and liquidation events, traders typically close all positions to free up margin requirements. This phenomenon partially explains why gold is declining despite being in a risk-off environment."
Meanwhile, physical gold demand across major Asian markets remained subdued throughout the week, adding another layer of pressure to precious metal valuations.
Other Precious Metals Performance
The market downturn extended beyond gold to other precious metals:
- Spot silver decreased by 2.8% to $50.84 per ounce, though it maintained a weekly gain of 5.2%
- Platinum fell 2.1% to $1,547.30
- Palladium declined by 2.8% to $1,387.25
Both platinum and palladium managed to stay positive for the week despite Friday's market turbulence, indicating varying degrees of resilience across the precious metals spectrum.
