Gold at $4,700 in Jeopardy as Fed's Hawkish Hammer Shatters Rate Cut Expectations, Intermediate Correction Inevitable

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Source: Huitong Finance

The fundamental reason for the recent gold rally is the resonance of multiple macro drivers, including ongoing geopolitical risks increasing safe-haven demand, structural support from global central banks continuously buying gold, and market pricing in an early cycle of Fed rate cuts. Under the combined effect of these three factors, gold prices have continued to strengthen and repeatedly hit new highs.

However, as market conditions change, these driving forces are showing clear signs of marginal weakening or even reversing, and the gold market is gradually transitioning from a unilateral rally to a correction phase. The most critical change from the current market structure comes from the reshaping of monetary policy expectations. Previously, the market widely expected the Fed to enter a rate cut cycle quickly, but rising energy prices have pushed up inflation expectations, and recent policy meetings have signaled a hawkish stance. As a result, the market is reassessing the interest rate path. This shift means that the previously well-priced rate cut expectations are being revised, even leading to a “rate cut expectation backlash,” which directly suppresses gold prices. Beyond interest rate logic, changes in safe-haven capital flows are also noteworthy. Although geopolitical risks persist, gold has not gained corresponding upward momentum and instead shows clear resistance at high levels. This indicates that safe-haven funds are reallocating, flowing more into US dollar assets rather than gold. With the dollar benefiting from liquidity and interest rate advantages, its safe-haven attributes are temporarily strengthening, thereby weakening gold’s appeal. This structural change—where safe-haven flows are no longer solely bullish for gold—is a key feature of the current market. Meanwhile, the overall commodity market performance also exerts indirect pressure on gold. Base metals prices are generally weakening, reflecting cautious expectations for global economic demand, and indicating that funds are flowing out of the commodities sector. In this context, gold finds it difficult to rise independently and is more likely to be dragged down by reallocation of funds, further intensifying the correction pressure. From a technical perspective, gold is currently at a critical trend node. The $4,700 level corresponds to the medium-term upward trend line and is also an important support zone from the previous rally, forming a key dividing line for the medium-term trend. A decisive break below this level would indicate the destruction of the prior upward structure, shifting the market from a “pullback within an uptrend” to an “intermediate correction phase.” Regarding downside targets, the $4,500 level is the first significant zone, corresponding to previous dense trading areas and psychological thresholds, offering strong support. If the $4,700 level is breached, the market could quickly move toward this zone. Further below, if $4,500 is broken, there is a possibility of extending to even lower levels, with the correction becoming more substantial.

It should be noted that although there is short- and medium-term correction pressure, the longer-term structural support for gold still exists. The ongoing central bank gold purchases reflect long-term considerations regarding asset allocation and monetary system stability, and this factor has not fundamentally changed. Therefore, this correction is more likely to be viewed as a phase within an upward trend rather than a long-term trend reversal.

Editor’s Summary

The gold market is at a critical stage shifting from multi-faceted bullish resonance to a restructuring of logic. The reversal of rate cut expectations, safe-haven capital reallocation, and weakness in commodity sectors together create current correction pressures. The $4,700 level marks a medium-term trend dividing line; if it is broken, $4,500 will become an important downside target. Overall, gold may have entered a mid-level correction cycle, but the long-term allocation rationale remains unchanged.

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Editor: Song Yafang