Gold soars past $4080, with the Fed's rate cut expectations rapidly changing. Can the May Day Golden Week market continue its strength?

Tuesday(, November 18), saw a dramatic turn in the gold market — intraday volatility reached nearly $85, fully demonstrating the market’s keen response to the Federal Reserve’s policy shift.

Behind the Gold Price Fluctuations: The Pendulum Effect of Policy Expectations

From an early decline to a late rebound, the gold trend of the day reflected market participants’ anxiety and anticipation regarding the Fed’s rate cut prospects. During the Asian session, gold prices remained under pressure, falling to a low of $3997.70 per ounce, the lowest since November 10. However, after the release of US ADP employment data, gold surged, reaching a high of $4082.44 per ounce during the New York session, completing a strong rebound of nearly $85.

By Tuesday’s close, spot gold rose 0.53%, closing at $4067.31 per ounce. The significance of this price level lies in the fact that it signals a renewed market expectation of a Fed rate cut in December.

US Labor Market Lights Up Red

The core driver behind the reversal in gold prices is the soft signals from US employment data. According to data released by ADP Research on Tuesday, over the four weeks ending November 1, US companies reduced approximately 2,500 jobs per week on average, indicating a clear slowdown in labor market momentum.

Even more concerning are a series of chain data points:

• US initial jobless claims in mid-October reached a two-month high
• Continuing claims for the week of October 18 increased to 1.9 million
• Cleveland Fed reports showed 39,000 Americans received layoff notices last month
• Planned layoffs in October hit the highest monthly level in over twenty years

The cumulative effect of these data points has strengthened investor expectations of economic weakness in the US, thereby boosting bets on rate cuts.

The Probability of a December Fed Rate Cut Significantly Rises

Market expectations for policy shifts are now quantitatively reflected. According to CME’s “FedWatch” tool, the current market perceives nearly a 50% chance of a rate cut at the December 9-10 meeting, up from less than 40% on Monday. This means that within just one day, market confidence in a December rate cut has increased by over 10 percentage points.

Independent metal trader Tai Wong pointed out that these economic data provide strong support for gold, which has been trying to break a three-day losing streak. Since gold itself does not generate interest, it tends to perform better in low-interest-rate environments, so the rising expectations of rate cuts directly benefit gold prices.

Dovish Signals from Within the Fed

On Tuesday, Fed Governor Waller expressed support for a rate cut, citing “softness” in the labor market, while emphasizing that inflation expectations remain stable, with core inflation approaching the Fed’s 2% target. Richmond Fed President Barkin said he hopes upcoming data will help clarify the economic outlook. These voices from the Fed’s decision-making circle reflect an honest assessment of the labor market conditions and open up room for further easing policies.

Technical Outlook: Gold in an Upward Channel

FXStreet analyst Christian Borjon Valencia pointed out that the overall upward trend of gold remains intact, with prices rebounding from around $4046, near the 20-day simple moving average(SMA). As the daily closing price reclaims this key moving average, the likelihood of challenging $4100 per ounce increases, with potential to test resistance at $4200 again.

However, Valencia also warned of risks: if gold fails to stay above $4050, it could face a correction back toward $4000, and possibly further down to the October 28 low( close to $3886).

Global Central Banks Continue to Bullish on Gold

Beyond US policy expectations, central bank gold purchases are providing fundamental support. Goldman Sachs disclosed that China’s gold reserves increased by about 15 tons in September. The bank’s analysts estimate that global central banks bought a total of 64 tons of gold in September, three times the amount purchased in August, indicating a sustained increase in demand for gold reserves.

Deutsche Bank analysts stated that in the foreseeable future, demand for gold from various countries will continue to rise, “supporting our forecast of an average gold price of $4000 per ounce next year.” This forecast implies that even after special periods like May Day Golden Week, the long-term price center of gold remains supported.

Key Data This Week Will Be Decisive

The market is currently awaiting the release of the Federal Reserve’s minutes from the October 28-29 meeting on Wednesday, and the US non-farm payroll report on Thursday. The US Bureau of Labor Statistics expects employment to increase by 55,000 in September; the actual data will directly influence the final judgment on a December rate cut.

StoneX technical strategist Michael Boutros believes the key question is: Is the labor market truly as soft as the data suggests? Is this softness enough to override ongoing inflation pressures and justify a Fed rate cut?

Overall, gold prices are showing upward momentum driven by expectations of Fed policy. The nearly $85 intraday volatility on Tuesday, while reflecting market anxiety, also provides long-term bullish investors with opportunities to buy on dips. The upcoming economic data releases will be crucial in determining whether gold can sustain its upward trend.