Gold prices rise, but Fed expectations and trade optimism limit gains
Gold prices saw a notable rise on Monday, supported by a decline in the US dollar index.
However, gains faced increasing pressure due to reduced expectations of interest rate cuts by the US Federal Reserve and improving trade relations between the US and China.
Gold Performance and Exchange Rates
Spot gold jumped more than 1% to reach $4,025 per ounce, while the US dollar index (DXY) fell 0.1% against a basket of rival currencies.
This decline in the greenback's strength made the dollar-denominated precious metal more attractive to holders of other currencies.
Federal Policy and its Impact on Gold
This scenario follows the US Federal Reserve's decision to cut interest rates by 25 basis points on October 29, the second time this year.
But Federal Reserve Chairman Jerome Powell’s hawkish remarks following the decision cast doubt on the likelihood of further interest rate cuts in 2025.
The Chicago Board of Trade’s FedWatch tool reflects this shift in expectations, with the probability of a December rate cut dropping from 90% to just 71% after Powell’s comments.
Factors Influencing Gold Trends
Gold, as a non-yielding asset, typically thrives in low interest rates and during periods of economic uncertainty, serving as a safe haven for investors.
Investors are currently awaiting a series of US economic data releases this week, including the ADP employment figures and the ISM Purchasing Managers’ Index, for clues that could influence the Federal Reserve’s monetary policy stance.
Easing Trade Tensions and Their Impact
On the other hand, improved trade relations between the US and China have reduced demand for safe-haven assets like gold, limiting the precious metal’s upward momentum.
This improvement was reflected in US President Donald Trump's agreement to reduce tariffs on China in exchange for concessions from Beijing, including cooperation in combating the illicit fentanyl trade, increased purchases of US soybeans, and facilitating rare earth exports.
New Chinese Measures Impact Demand
China also took another significant step by eliminating a long-standing tax incentive on gold sales, a move that could raise consumer prices and weaken demand in one of the world's largest bullion markets, further pressuring global prices for the precious metal.
Gold currently appears to be facing conflicting market conditions, supported by factors such as a weaker dollar, while pulled down by expectations of tighter monetary policy and an improving global trade outlook, creating a volatile trading environment for the yellow metal in the coming period.
