Gold Headed for Weekly Decline as Interest Rate Cut Hopes Diminish

Gold prices saw a notable decline during Friday's trading session, dropping by more than 1% to touch $4,030 an ounce, putting it on track for a clear weekly loss.

The main reason behind this downward pressure is the recent US jobs report, which exceeded analysts' expectations, reinforcing the market's belief that the Federal Reserve will refrain from cutting interest rates at its meeting scheduled for December.

This strong indicator prompted many traders to take profits on their positions, a move that began at the end of last week and continued throughout the current sessions.

Factors Driving the Decline

1- Strength of the US Dollar:

The Dollar Index (DXY) rose, recording its strongest weekly performance in over a month.

This strength made dollar-denominated gold more expensive for holders of other currencies, thus dampening global demand.

2. Adjusted Monetary Policy Expectations:

Following strong economic data, market bets on an interest rate cut next month have declined, with traders now estimating the probability at only about 35%.

This shift aligns with comments from Federal Reserve officials, such as Chicago Fed President Austin Goolsbee, who on Thursday expressed unease about the prospect of early rate cuts, particularly given inflation's sluggish progress toward the 2% target.

3. Weakened Physical Demand in Asia:

Weak physical demand for gold in major Asian markets this week contributed to the sell-off, as fluctuating interest rate expectations left potential buyers hesitant and awaiting further clarity.

Ultimately, the current gold market outlook appears heavily influenced by US data and anticipated central bank policy. With labor market data reinforcing the Fed's hawkish stance and traders taking profits, the precious metal faces multiple pressures in the near term, unless weaker economic data emerges or policymakers provide fresh signals.