Fed rate expectations influence market sentiment
Comments from Fed Chairman Jerome Powell on Monday dampened hopes for aggressive interest rate cuts, indicating that future steps would likely be limited to cuts of a quarter of a percentage point. Powell stressed that the central bank is in “no rush” to cut rates quickly after positive economic data boosted confidence in growth. This cautious stance has rubbed off on gold, as lower interest rates lower the opportunity cost of holding non-performing assets, which tends to support the gold price.
Analysts suggest this week’s labor market data, including ADP employment and nonfarm payrolls, could influence the Fed’s approach. A weaker-than-expected labor market report could revive hopes for more aggressive easing, boosting gold prices. According to CME’s FedWatch tool, the probability of a 25 basis point cut rose to 63% in November, up from 47% last week.
Upcoming economic reports could change the market outlook
Traders will keep a close eye on upcoming US data, including the Institute for Supply Management (ISM) manufacturing and services indices, due later this week. Friday’s nonfarm payrolls report will be particularly critical as it could provide further insight into the health of the US labor market. Strong labor data could reduce the likelihood of further rate cuts, putting downward pressure on gold. Conversely, any signs of economic weakening could renew support for the metal, especially if it reinforces expectations for a more aggressive Fed response.
Geopolitical tensions and central bank demand
Gold continues to be supported by geopolitical uncertainties, including Israel’s possible military action against Hezbollah in Lebanon. Political risks often increase gold’s appeal as a safe haven.
However, Goldman Sachs noted that factors such as declining geopolitical risks and reduced demand from central banks could limit gold’s upward trend. Weaker ETF inflows and declining retail demand from China are also seen as potential constraints on future price increases.
Market Forecast: Neutral to Bearish
In the short term, gold prices are likely to remain within a range, pending key US labor data and signals from the Fed. A stronger-than-expected jobs report could provide downward pressure, pushing prices below $2,616.25 and potentially testing deeper support levels. Conversely, weaker data could reignite bullish momentum. For now, the outlook remains neutral to bearish, with downside risks outweighing near-term upside potential.