Full analysis of the reasons for gold's decline: Federal Reserve's shift in stance causes gold prices to plummet

Thursday( November 13) Spot Gold Encountered Widespread Selling, Dropping $23.90 to $4,171.36 per ounce in a single day. This adjustment seems sudden, but there are clues—market expectations for the Federal Reserve’s future monetary policy have undergone a significant shift.

Rate Cut Expectation Reversal: Market Expectations Change

Traders currently estimate that the probability of the Federal Reserve cutting interest rates by 25 basis points at the December meeting has fallen below 50%, a notable decline from 62.9% the previous day. This shift has become the main driver behind the decline in gold prices.

According to analysis, gold prices briefly touched $4,244.94 per ounce intraday, reaching a new high since October 21. However, as safe-haven demand waned and rate cut expectations weakened, gold prices sharply retreated. After the U.S. government ended the longest shutdown in history lasting 43 days, and signs of easing in US-China trade tensions appeared, these factors collectively prompted investors to close positions for profit.

Independent metals trader Tai Wong stated that this wave of market movement exhibits the typical “buy the rumor, sell the news” characteristic. The reopening of the government triggered a market re-pricing, exerting pressure not only on gold but also causing broad sell-offs in stocks, bonds, the dollar, and even cryptocurrencies.

Federal Reserve Officials Reinforce Cautious Stance

Another core factor driving gold prices down is the shift in attitude among Federal Reserve officials. Increasingly, officials are showing caution regarding further rate cuts, mainly due to concerns over inflation risks. The Fed has already implemented two rate cuts this year, and the current employment market shows relatively stable signs, providing officials with reasons to pause rate cuts.

Fed Chair Jerome Powell emphasized in October that further rate cuts this year are “by no means a certainty,” which immediately boosted the dollar. San Francisco Fed President Mary Daly said on Thursday that, given the risks to two policy objectives have become more balanced, she remains open-minded about the December rate decision. Cleveland Fed President Loretta Mester hinted at opposition to further rate cuts recently, believing that monetary policy should remain at a level that helps reduce inflationary pressures. St. Louis Fed President James Bullard warned that current interest rates are close to neutral, with limited room for further easing, as excessive rate cuts could overheat the economy.

US Stocks Drop in Response: Risk Assets Decline Broadly

The decline in gold reflects a broader shift in market sentiment. US stocks experienced heavy selling on Thursday, with the Dow plunging 797.6 points( down 1.65%), the S&P 500 falling 1.66%, and the Nasdaq dropping 2.29%, with all three indices posting their worst single-day performance since October 10.

Expectations for future interest rate policies have weakened among investors, coupled with concerns over whether AI capital expenditures can translate into productivity gains as expected, leading to adjustments in high-valuation assets. Juan Perez, head trader at Monex USA in Washington, noted that after the government shutdown ended, delayed data releases will keep the market highly volatile for a considerable period, making it difficult for investors to base decisions on reliable statistics from October and September.

Technical Outlook Faces Turning Point

FXStreet analyst Christian Borjon Valencia believes that the upward trend in gold remains intact, but key support levels are crucial. The daily chart shows the Relative Strength Index(RSI) near neutral, suggesting the bullish momentum is waning.

The critical turning point is around $4,200 per ounce. If the gold price closes below this level on the daily chart, it will clear the way for sellers, pushing gold down toward $4,100 per ounce. If it further breaks below the 20-day simple moving average(SMA) at $4,074, the next target will be near the October 28 low of $3,886 per ounce.

Extended Data Vacuum Period Increases Market Uncertainty

Jim Wyckoff, senior analyst at Kitco Metals, stated that initially, the market expected that weak labor data released after the government shutdown would push the Fed to cut rates at least by December. However, as officials’ attitudes shifted, this assumption has unraveled.

The current decline in gold is driven both by the collapse of rate cut expectations and by the market’s re-pricing of risk assets. Until comprehensive U.S. economic data is released, high volatility is expected to persist, and the appeal of gold as a safe-haven asset will face tests.