On Wednesday, gold prices surged nearly 2% amid risk-off sentiment and expectations for a rate cut by the Federal Reserve, reaching the key $4000 mark. However, the optimism was short-lived. Despite the Fed's decision to cut rates by 25 basis points to the 3.75%-4.00% target range, Fed Chairman Powell's hawkish statements during the press conference extinguished the enthusiasm of gold bulls. Gold prices reversed all gains and turned negative, hitting a low of $3916.56.
Powell made it clear that there was strong internal disagreement within the Federal Reserve over the possibility of a December rate cut, emphasizing that further cuts were not guaranteed. He stated that monetary policy was not on a preset path, and financial markets should not assume that another rate cut would occur by the end of the year.
Data showed that before Powell's comments, the probability of a 25 basis point rate cut in December was as high as 95%. After his remarks, this probability dropped to 67.9%. Powell's hawkish rhetoric directly fueled the rise of the USD and U.S. Treasury yields.
The strength of the USD and the surge in Treasury yields together raised the opportunity cost of holding gold, significantly increasing the cost for overseas buyers to purchase gold. As a result, gold prices came under pressure.
Regarding the liquidity concerns most closely watched by the market, the Fed announced that it would restart limited Treasury purchases, officially ending the years-long quantitative tightening (QT) policy. With the Fed stabilizing its bond holdings, the pace of monetary tightening will slow. However, asset and liability expansion may resume between March and September 2026 to match economic growth.
Gold's reaction to Powell's retraction of December rate cut expectations is understandable. Federal Funds Rate futures have significantly reduced the pricing of rate cuts, which will boost the USD and weigh on gold.
On Thursday (October 30), spot gold traded within a narrow range around $3940, with market activity cautious. The market is focusing on the meeting between the Chinese and U.S. leaders in Seoul, South Korea. If no breakthroughs occur in the trade talks, it could provide short-term safe-haven support for gold. Conversely, if the talks progress positively and the expectations for a December rate cut further diminish, gold will face increased downward pressure.
Market Interpretation:
Gold has seen a slight rebound on the 4-hour chart, with MACD lines and volume bars still hovering below the zero axis. Investors need to closely monitor the subsequent statements from Fed officials, the progress of China-U.S. negotiations, and the decisions of the Bank of Japan and ECB. Any market movements could trigger sharp fluctuations.
