Following Donald Trump’s victory in the US presidential election, the US dollar strengthened significantly, increasing downward pressure on gold prices. The dollar index rose 0.6% this week to reach its highest level since July, while spot gold fell 1.8%. This reflected traders’ sense of risk as money flowed into assets poised to benefit from Trump’s economic policies. Trump’s expected fiscal and trade measures, especially tariffs and tax cuts, fueled inflation concerns, which in turn led to higher bond yields. As a result, the yield on ten-year government bonds rose to 4.47%, reducing the appeal of non-yielding assets such as gold.
Federal Reserve interest rate cut and cautious outlook
The Federal Reserve cut rates by 25 basis points, bringing the fed funds rate to a range of 4.5% to 4.75%, in line with market expectations. However, Fed Chairman Jerome Powell signaled a cautious approach to future rate cuts, underscoring economic resilience and inflation expectations rather than rapid monetary easing. Market expectations for additional rate cuts have been tempered as the FedWatch Tool now suggests a 75% probability of another quarter-point cut in December, but a high chance of a pause in January, negating any near-term bullish momentum for gold tempered.
Weak demand in key physical markets
In addition to macroeconomic pressures, physical demand for gold showed signs of weakness. In India, one of the biggest buyers of gold, buying interest waned after robust festival sales, while demand remained subdued in Japan and Singapore. This decline in physical demand further weighed on market sentiment and contributed to the overall bearish trend.
Upcoming Economic Data: CPI and PPI Outlook
Looking ahead, traders are now focusing on next week’s Consumer Price Index (CPI) and Producer Price Index (PPI), key indicators of inflation trends that could shape the Fed’s future policy. The CPI report, due on November 13, is expected to show headline inflation at 2.6% on an annual basis, up from 2.4% in September, with an increase of 0.2% on a monthly basis. Meanwhile, the PPI, which remained stable in September, will provide additional insights into inflationary pressures. A high PPI value would likely support the dollar as it signals inflationary pressure on production costs, potentially leading to tighter Fed policy.
Market Forecast: Bearish Outlook as the Dollar and Interest Rates Rise
With a stronger dollar and rising yields, gold is positioned for potential downside risk in the coming week. If the CPI and PPI numbers match forecasts and support the inflation narrative, the Fed’s cautious stance on rate cuts could further hamper gold’s appeal. Traders will be watching closely for signs that inflation data may prompt further Fed tightening, likely maintaining the bearish outlook for gold.