Gold prices dropped on Tuesday, hovering near $2,642 per ounce, as stronger-than-expected U.S. labor market data tempered expectations for a significant interest rate cut by the Federal Reserve.
The metal, which offers no yield, has been weighed down by recent economic indicators suggesting the U.S. economy remains resilient, despite tightening monetary policy.
The U.S. Dollar Index (DXY) pulled back from a seven-week high, giving some temporary relief to gold prices. However, the dollar’s retreat has not been sufficient to drive a rebound in the metal as traders eye upcoming economic reports and Federal Reserve communications.
U.S. Dollar Dynamics and Federal Reserve Policy Outlook
The greenback has softened slightly as traders reassess the Fed’s rate trajectory ahead of the Federal Open Market Committee (FOMC) meeting minutes release on Wednesday, followed by key inflation data from the Consumer Price Index (CPI) and Producer Price Index (PPI) later this week.
According to the CME Group’s FedWatch Tool, market participants currently see an 85% chance of a 25 basis point rate cut at the next FOMC meeting, a scenario that continues to create uncertainty for gold’s outlook.
Last week’s strong U.S. non-farm payroll report, which showed 336,000 jobs added in September, highlighted the labor market’s resilience.
Minneapolis Fed President Neel Kashkari noted that while inflation risks are easing, the potential for rising unemployment could reshape the central bank’s policy approach.
St. Louis Fed President Alberto Musalem echoed this cautious sentiment, suggesting that “further gradual reductions in the policy rate will likely be appropriate over time,” indicating that the Fed is closely monitoring economic conditions before committing to any aggressive policy shifts.
Gold Price Outlook: Mixed Factors Influence Market Sentiment
Meanwhile, the yield on the benchmark 10-year Treasury bond surged past 4%, its highest level in over two months, further pressuring non-yielding assets like gold. Rising bond yields, coupled with diminished expectations for deep rate cuts, have dulled the appeal of gold as an investment.
On the geopolitical front, Middle East tensions are providing a floor for gold prices as investors seek safe-haven assets amid heightened uncertainty.
Additionally, concerns over China’s economic slowdown add to global economic worries, which may help support gold prices in the near term despite a generally bearish outlook.
