By Rania Gule Senior Market Analyst

Gold prices dropped sharply yesterday, starting Wednesday’s trading at $2,617 after a strong U.S. jobs report boosted expectations that the Federal Reserve may slow down its rate cuts.

negatively impacted gold, which offered no yield. Additionally, news reports suggesting support from parties in the Middle East conflict for efforts to achieve a ceasefire prompted investors to take profits.

The prospects of easing tensions shifted capital from safe-haven assets like gold to higher-risk assets such as stocks.

At the same time, gold is facing additional pressure from rising U.S. Treasury yields, which remained above 4% following the strong non-farm payroll report. I expect that any reduction in geopolitical tensions will lead to continued selling of gold, especially if U.S. stocks keep gaining amid improved market sentiment.

As investors await U.S. inflation data and the Federal Reserve’s meeting minutes, any further hints about policy stability could push gold prices even lower, particularly if the Fed takes a more cautious approach to rate cuts.

The yellow metal has declined for six consecutive days and remains below the key support level of $2,630. In my view, gold is influenced by several fundamental factors, including the strength of the U.S. dollar, investor expectations of upcoming monetary policy decisions from the Federal Reserve, and recent geopolitical developments.

With the market waiting for the Federal Open Market Committee (FOMC) minutes and U.S. inflation figures, the main question remains: which direction will gold prices take in the coming period?

I believe many traders are preferring to wait before making significant decisions on gold until the release of the Fed minutes.

The minutes are expected to provide a clearer view of the likely path for rate cuts in the U.S. Inflation numbers due in the coming days could also be critical, as their impact will closely align with the Fed’s stance on rate reductions.

Historically, gold prices tend to move inversely to the U.S. dollar; rate cuts usually weaken the dollar and increase demand for gold as a safe-haven asset.

Currently, the U.S. dollar index (DXY) is near a seven-week high, adding pressure on gold prices.

A stronger dollar reinforces the view that the Federal Reserve may not be in a hurry to make significant rate cuts, especially as expectations of a large reduction at the upcoming November meeting have eased.

This scenario, along with a potential ceasefire in the Middle East, has reduced gold’s short-term appeal as a haven.

From an economic and fundamental perspective, it is expected that the Federal Reserve will gradually slow the pace of rate cuts.

Investors are factoring in over an 85% chance that the Fed will cut rates by 25 basis points at the November meeting. If that happens, we might see stability or even a rebound in gold prices, especially if economic conditions remain weak and inflation continues to gradually decline.

Many Federal Reserve officials have recently stated that the current monetary policy aims to control inflation without harming economic growth, which may limit gold’s short-term rise. In my opinion, U.S. Treasury yields play a key role in influencing gold.

The yield on 10-year bonds has surpassed 4%, increasing the pressure on non-yielding gold. When yields are high, investors prefer to hold assets that provide direct returns, such as bonds, over non-yielding assets like gold.

On the geopolitical front, recent reports of a possible ceasefire in the Middle East have provided some relative easing of tensions in the region. While geopolitical conflicts usually support gold as a haven, any positive developments in this area could contribute to further pressure on the yellow metal.

In my view, gold remains in an unstable position for now, as investors closely watch the FOMC minutes and upcoming inflation data. These events could be pivotal in determining gold’s direction in the coming weeks. Despite the current pressures, any indication of easing inflation or U.S. monetary policy could provide new support for gold.

However, the biggest challenge remains how gold will cope with a strong dollar and high bond yields. Therefore, expectations are tied to upcoming economic and geopolitical developments.

Gold emerged as a star performer as the Federal Reserve adopted a more patient stance, sending the precious metal soaring to new heights.

Amidst a backdrop of uncertainty, gold’s ascent mirrored investors’ appetite for safe-haven assets and reflected their interpretation of the central bank’s cautious approach.

Following the Fed’s decision to maintain interest rates at their current levels, gold prices surged toward $2,330 an ounce in early Asian trade, building on a 1.5% gain from the previous session – the most significant one-day increase since mid-April.

The dovish tone struck by Fed Chair Jerome Powell during the announcement provided the impetus for gold’s rally, as he downplayed the prospects of imminent rate hikes while underscoring the need for further evidence of cooling inflation before considering adjustments to borrowing costs.

This tempered outlook from the Fed, which emphasized patience and data dependence, bolstered gold’s appeal as a hedge against inflation and economic uncertainty.

Investors interpreted the central bank’s stance as a signal of continued support for accommodative monetary policies, providing a tailwind for the precious metal.

Simultaneously, the Japanese yen surged more than 3% against the dollar, sparking speculation of intervention by Japanese authorities to support the currency.

This move further weakened the dollar, enhancing the attractiveness of gold to investors seeking refuge from currency volatility.

Gold’s ascent in recent months has been underpinned by a confluence of factors, including robust central bank purchases, strong demand from Asian markets – particularly China – and geopolitical tensions ranging from conflicts in Ukraine to instability in the Middle East.

These dynamics have propelled gold’s price upwards by approximately 13% this year, culminating in a record high last month.

At 9:07 a.m. in Singapore, spot gold was up 0.3% to $2,326.03 an ounce, with silver also experiencing gains as it rose towards $27 an ounce.

The Bloomberg Dollar Spot Index concurrently fell by 0.3%, further underscoring the inverse relationship between the dollar’s strength and gold’s allure.

However, amidst the fervor surrounding gold’s surge, palladium found itself trading below platinum after dipping below its sister metal for the first time since February.

The erosion of palladium’s long-standing premium was attributed to a pessimistic outlook for demand in gasoline-powered cars, highlighting the nuanced dynamics within the precious metals market.

As gold continues its upward trajectory, investors remain attuned to evolving macroeconomic indicators and central bank policy shifts, navigating a landscape defined by uncertainty and volatility.

In this environment, the allure of gold as a safe-haven asset is likely to endure, providing solace to investors seeking stability amidst turbulent times.

Amidst a backdrop of global economic shifts and geopolitical recalibration, gold prices dipped below the $2,300 price level.

The decline comes as investors carefully analyse signals from the Federal Reserve regarding its future interest rate policies.

After reaching record highs earlier this month, gold suffered its most daily decline in nearly two years, shedding 2.7% on Monday.

The recent retreat reflects a multifaceted landscape where concerns over escalating tensions in the Middle East have eased, coupled with indications that the Federal Reserve may maintain higher interest rates for a prolonged period.

Richard Grace, a senior currency analyst and international economist at ITC Markets, noted that tactical short-selling likely contributed to the decline, especially given the rapid surge in gold prices witnessed recently.

Despite this setback, bullion remains up approximately 15% since mid-February, supported by ongoing geopolitical uncertainties, central bank purchases, and robust demand from Chinese consumers.

The shift in focus among investors now turns toward forthcoming US economic data, including key inflation metrics favored by the Federal Reserve.

These data points are anticipated to provide further insights into the central bank’s monetary policy trajectory.

Over recent weeks, policymakers have adopted a more hawkish tone in response to consistently strong inflation reports, leading market participants to adjust their expectations regarding the timing of future interest rate adjustments.

As markets recalibrate their expectations for monetary policy, the prospect of a higher-for-longer interest rate environment poses challenges for gold, which traditionally does not offer interest-bearing returns.

Spot gold prices dropped by 1.2% to $2,298.67 an ounce, with the Bloomberg Dollar Spot Index remaining relatively stable. Silver, palladium, and platinum also experienced declines following gold’s retreat.

The ongoing interplay between economic indicators, geopolitical developments, and central bank policies continues to shape the trajectory of precious metal markets.

While gold faces near-term headwinds, its status as a safe-haven asset and store of value ensures that it remains a focal point for investors navigating uncertain global dynamics.