Gold prices struggled to maintain modest gains on Monday amid market expectations for a less aggressive interest rate cut from the US Federal Reserve.
On COMEX, the December gold contract rose on Monday, breaking a six-day losing streak, as the dollar weakened against a basket of major currencies.
A weaker dollar makes commodities like gold more affordable for international buyers.
At the time of writing, the December gold contract was up 1%, trading at $2,597 per ounce.
However, after reaching intraday highs, prices retreated below the $2,600 mark.
Gold endures worst week since 2021
Last week, gold experienced its sharpest weekly decline since 2021, falling 4.6% and hitting a two-month low.
The surging dollar, fueled by Republican Donald Trump’s victory in the 2024 US presidential election, dampened demand for the non-yielding asset.
This price decline coincided with significant outflows from gold ETFs, totaling nearly 22 tons since the beginning of the month, according to Bloomberg.
Further impacting gold prices, the October US consumer price index remained elevated, reducing expectations for another interest rate cut by the Federal Reserve in December.
Lower interest rates typically support gold prices due to its non-yielding nature.
Gold struggles over reduced Fed rate cut bets
Despite Monday’s gains, gold struggled to consolidate above the critical $2,600 per ounce level.
Analysts attribute this resistance to diminished expectations of further Fed rate cuts.
“Traders and investors are concerned that the yellow metal could face even more challenging time in the coming period as the Fed is in no rush to change its monetary policy anytime soon given the fresh economic readings,” Naeem Aslam, chief investment officer at Zaye Capital Markets, told Kitco.com.
According to the CME FedWatch tool, the probability of a 25-basis-point rate cut by the US central bank at the December meeting is currently estimated at 61.9%.
At one point last week, market expectations for a rate cut reached as high as 80%.
However, several Fed officials have since cautioned against further cuts, emphasizing the need for a more cautious approach.
On Thursday, at a Dallas event, Fed Chair Jerome Powell highlighted the continued resilience of the labor market and the overall strength of the economy, suggesting a need for prudence regarding further rate adjustments.
Boston Fed President Susan Collins echoed this sentiment in an interview, stating that while a December rate cut remains a possibility, it is not a certainty, and the Fed’s monetary policy path remains flexible, according to Fxstreet.
Can gold prices rebound?
Experts note that the combined pressure of a strengthening dollar and diminished expectations for aggressive rate cuts has weighed heavily on gold.
However, several other factors could influence the precious metal’s trajectory in the coming months.
Gold prices had hit a series of new record highs in the last few months.
Prices had first breached the $2,600-per-ounce level for the first time ever.
Subsequently, the precious metal also topped $2,700 and $2,800 in October.
Prices had climbed more than 30% since the beginning of the year.
Geopolitical tensions remained high in the Middle East, while an escalation in the war between Russia and Ukraine over the weekend spooked financial traders.
Russia launched a massive air strike on Ukraine on Sunday, its biggest hit in almost three months.
Dhwani Mehta, analyst at Fxstreet, said in a report:
Markets remain wary of further escalation in Russia-Ukraine tensions and the ongoing conflict between Israel and Iran, spurring safe-haven flows into the bright metal.
Meanwhile, traders are now convinced that President-elect Trump’s incoming policies are likely to stock higher inflation.
Though this is expected to slow down the rate cut cycle of the Fed, persistent high inflation.
Investors invest more in gold to hedge against inflation.
Technical outlook
According to Fxstreet, the $2,536-$2,535 level acts as a pivotal point for gold prices.
“A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for further losses,” Haresh Menghani, editor at Fxstreet, said.
He added that a subsequent fall below the pivot could drag gold prices below the psychologically crucial level of $2,500 per ounce.
Menghani noted:
On the flip side, any subsequent strength above the $2,600 mark is likely to confront stiff resistance and remain capped near the $2,620-2,622 region.
But, the outlook on gold prices for now depends on the Fed commentary.
Several Fed officials are again scheduled to speak this week.
Further cues on the central bank’s monetary policy easing could lend cues to the yellow metal.
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