Gold News: Fed Signals Caution as Inflation Uncertainty Clouds Market

Gold Prices Decline, Poised for Worst Week in Five Months

Gold futures edged higher on Friday but remained within Thursday’s range as traders analyzed the Federal Reserve’s recent rate cut and the potential inflationary effects tied to Donald Trump’s re-election. Spot gold is down 1.7% this week, on track for its steepest weekly decline in over five months.

At 12:02 GMT, XAU/USD is trading $2690.75, down $16.08 or -0.59%.

Fed Cuts Rates and Signals Cautious Approach

The Federal Reserve lowered its interest rates by 25 basis points on Thursday, bringing the federal funds rate to a target range of 4.5%-4.75%. While this move was widely anticipated, Fed Chair Jerome Powell’s cautious guidance suggested a more measured approach to future cuts, intensifying market focus on U.S. economic indicators. Notably, Powell emphasized that the recent election would not affect immediate monetary policy decisions, further complicating short-term outlooks for gold as traders weigh the balance between inflationary pressures and limited rate cuts.

Traders are largely expecting an additional 25-basis-point reduction in December, with the CME FedWatch Tool indicating a 75% probability of this outcome. However, the same tool shows a strong 71% chance of a “skip” on rate cuts in January, reflecting the Fed’s cautious stance. Higher rates generally diminish the appeal of non-yielding assets like gold, contributing to recent downward price pressure.

Inflation Expectations Fuel Uncertainty for Gold

Inflation concerns tied to Trump’s tariff policy have also clouded the Fed’s projected rate path, with many expecting that significant tariff actions could drive inflation higher, potentially deterring aggressive rate cuts.

“The gold market still needs to find its balance after the election outcome,” noted Julius Baer analyst Carsten Menke, highlighting that potential inflation from a Trump administration could pressure the Fed to slow or pause rate cuts.

This uncertainty has spurred a “buy the rumor, sell the fact” response from investors who anticipate that inflation may rise in 2024, yet remain cautious about longer-term gains in gold.

Weak Physical Demand Adds Pressure

In the physical gold market, demand softened in India, with buyers holding off amid price volatility following strong festival sales. Japan and Singapore saw moderate buying, but overall demand remains subdued. With global investors wary of committing to higher gold prices, market sentiment continues to lean bearish.

Market Forecast: Bearish Near-Term Outlook for Gold

The short-term technical trend in gold remains bearish as prices hover around minor support at $2697.28, with additional support at $2668.51 and the 50-day moving average at $2643.75. A key pivot point at $2716.76 serves as both an upside target and potential resistance level; however, given the Fed’s cautious outlook and heightened inflationary expectations under Trump, the market appears unlikely to break above this resistance soon.

In the near term, gold is expected to face continued downside risk, with potential for further declines if the Fed’s cautious stance deters additional rate cuts and inflationary pressures persist. Unless new economic data strongly supports additional Fed easing, gold prices may consolidate lower, challenging support levels into December.