Gold Prices Fall as Fed Rate Cut Probability Jumps to 72%

TLDR

• Gold prices dipped to $4,052-$4,065 per ounce on Monday as improving risk appetite reduced safe-haven demand
• Federal Reserve rate cut expectations for December surged from 40% to 67-72% after NY Fed President John Williams signaled potential cuts
• Williams cited softening labor market concerns and easing inflation risks as reasons to lower borrowing costs
• U.S. dollar reached six-month highs, making gold more expensive for foreign currency holders
• Key U.S. economic data including retail sales, GDP, and PCE inflation figures are due this week after government shutdown delays

Gold prices fell in Asian trading on Monday as traders shifted focus toward riskier assets following renewed expectations that the Federal Reserve will cut interest rates in December. Spot gold declined 0.3% to settle around $4,052-$4,065 per ounce.

The mood in markets changed after New York Fed President John Williams said on Friday that interest rates could fall without threatening the central bank’s inflation targets. Williams pointed to potential risks facing the labor market as justification for lowering borrowing costs.

His comments triggered a sharp reversal in trader sentiment. The probability of a 25 basis point rate cut at the Fed’s December 9-10 meeting jumped to between 67% and 72%. Just last week, traders were pricing in only a 40% chance of a December cut.

Lower interest rates typically support gold prices because the metal does not generate yield like bonds or savings accounts. When rates fall, the opportunity cost of holding gold decreases.

The U.S. dollar traded near six-month highs reached on Friday. A stronger dollar makes gold more expensive for buyers using other currencies. This dynamic limited gold’s ability to gain ground despite the improved rate cut outlook.

Economic Data on Deck

Markets are preparing for a wave of delayed U.S. economic reports this week. The data was postponed due to a prolonged government shutdown. Industrial production and capacity utilization figures are scheduled for release on Monday.

Tuesday brings producer price index and retail sales data. Wednesday features multiple releases including building permits, durable goods orders, jobless claims, and third-quarter GDP numbers.

The PCE price index, which is the Federal Reserve’s preferred measure of inflation, also comes out Wednesday. These reports cover September activity and will provide insight into the economy heading into December.

The lack of October data means Fed officials will have limited information when they meet for their final policy decision of the year. The central bank has been divided on whether additional rate cuts are needed in 2025.

Geopolitical Factors

Reports emerged that the U.S. and Ukraine were working on a modified ceasefire plan with Russia. The earlier proposal was viewed as too favorable to Moscow. These diplomatic efforts contributed to improved risk sentiment in markets.

Gold typically benefits from geopolitical tensions as investors seek safe-haven assets. The potential for progress on the Russia-Ukraine conflict reduced this support for prices.

Other precious metals showed mixed performance. Platinum rose between 1.4% and 2.4% to reach $1,537-$1,547 per ounce. Silver gained 0.2% to $49.92-$50.11 per ounce. Palladium added 0.6% to $1,383.50 per ounce.

Central banks continued to be net buyers of gold according to market analysts. Concerns about potential Supreme Court decisions on trade policies also provided some underlying support for prices. The metal remained above $4,000 per ounce despite Monday’s decline.

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