Fed Messaging Erodes Rate Cut Odds
Federal Reserve officials leaned hawkish throughout the week, with Kansas City Fed President Jeffrey Schmid stating inflation remains too elevated. That tone helped drag the CME FedWatch Tool’s implied probability for a December 25-basis-point rate cut down to 46%, from 50% earlier in the week. The repricing caught gold bulls off guard and triggered a wave of broad asset liquidation.
The market reaction wasn’t limited to metals. Equities and bonds also sold off as rising yields pushed investors to exit risk assets. In this kind of forced liquidation, even gold, typically a safe haven, came under pressure as traders scrambled to raise cash and meet margin calls.
Data Vacuum Keeps Traders Guessing
Traders were also left flying blind due to missing government data, a ripple effect from the recently resolved U.S. government shutdown. October’s CPI, PPI, and nonfarm payrolls were not published, and the White House confirmed some reports may never be released. Without hard economic data, markets have been forced to rely heavily on Fed commentary and sentiment.
That uncertainty has kept both the Fed and investors in a holding pattern, with futures markets struggling to price the next policy move with confidence.
Rising Yields Add to Gold’s Headwinds
U.S. Treasury yields moved higher across the curve. The 10-year closed at 4.148%, while the 2-year rose to 3.61% and the 30-year ended at 4.749%. With real yields firming and rate cut odds fading, the opportunity cost of holding non-yielding gold increased, pressuring the metal further.
Physical gold demand in Asia was also muted, offering no cushion during Friday’s sharp drop. That lack of retail support left futures more vulnerable to momentum-driven selling.
