Gold’s direction is uncertain with weakening December rate-cut expectations putting downward pressure on prices, while worries about a slowing U.S. economy and Fed independence support safe-haven demand, according to Dilin Wu, research strategist at Pepperstone.
Wu noted that over the past week, gold prices followed a classic ‘rally-then-retreat’ pattern. “Bulls and bears were both active: on one hand, rising uncertainty over the U.S. economic outlook and doubts about the Fed’s independence supported safe-haven demand; on the other hand, with the government reopening, some profit-taking by bulls, and continued hawkish signals from Fed officials along with lowered market expectations for easing, bullish momentum was restrained,” she said.
Wu said markets will be focused on September’s nonfarm payrolls on Friday morning. “While the data may be somewhat lagged due to the government shutdown, it could still act as a key catalyst for short-term volatility,” she warned.
Turning to the technical picture, Wu noted that the yellow metal was searching for direction after last week’s sharp rally was followed by an abrupt pullback. “Early last week, the price held above $4,000 and broke through $4,100 and $4,200, peaking intraday at $4,245,” she said. “However, sentiment shifted abruptly on Thursday, sending gold back below $4,100, with a weekly close at $4,085.”
She said that to the downside, $4,050 followed by $4,000 are likely to provide support, while a move back above $4,100 would set up a target of last week’s $4,245 high as key resistance on the way to challenging the all-time high.
“Notably, gold’s correlation with the USD, Treasury yields, and equities is currently low, meaning prices are largely driven by flows rather than traditional macro factors, which amplifies volatility,” Wu said. “Recent fundamental developments are worth monitoring as they could guide future price direction.”
Wu attributed last week’s sharp moves in the gold price to a sharp decline in market expectations for a December rate cut from the Fed. “Several Fed officials, including Schmied and Logan, highlighted persistent inflation pressures and issued hawkish signals, directly curbing expectations for further easing this year,” she said. “A month ago, the market was nearly certain of a December cut, with odds around 90%; today, that probability has fallen below 50%.”
“The Treasury yield curve has steepened on the downside, indicating traders are repricing both inflation risk and the pace of Fed easing. As a non-yielding asset, gold naturally faces pressure,” she added. “Risk-off sentiment, which pushed equities sharply lower, also intensified selling pressure on gold due to margin call pressures.”
Wu said the Fed’s recent hawkish shift was driven by the 43-day U.S. government shutdown. “While the government reopening and the Treasury’s TGA account liquidity boost are supportive, the data gaps created during the shutdown leave policymakers and traders ‘flying blind,’” she said. “Key economic data collection was disrupted: October’s employment, inflation, and GDP initial estimates have clear gaps; November employment data is incomplete, and inflation statistics remain limited. This uncertainty reinforces gold’s appeal as a safe haven.”
“Additionally, Atlanta Fed President Bostic, a hawk, announced he will not seek reappointment. His position could be filled by a more dovish official, increasing concerns over Fed independence,” she noted. “Hassett publicly stated willingness to lead the Fed and pursue aggressive rate cuts, further heightening policy uncertainty and boosting gold’s safe-haven demand.”
In the short-term, Wu expects gold to trade in a $4,000–$4,250 range. “Market focus will be on upcoming delayed data releases, which could affect rate-cut expectations,” she said, with the Bureau of Labor Statistics’ September nonfarm payrolls report chief among them. “Market expectations are for 50k new jobs, up from 22k previously, with unemployment steady at 4.3%. If the data shows a resilient labor market, it could exert modest pressure on gold. For the December 10 FOMC meeting, the November nonfarm report released on December 5 will be more relevant.”
The Wednesday release of the FOMC minutes from the Fed’s October meeting will also be important. “If the minutes show most officials remain concerned about inflation and oppose easing, gold may face headwinds; if concerns about economic slowdown are highlighted, it could provide limited support,” Wu said.
Source: Ernest Hoffman Kitco
