Gold prices have dropped for the third day in a row as reduced expectations for a Federal Reserve interest rate cut boosted the US Dollar. After a brief increase in the Asian session, gold is hovering near a one-week low around the $4,100 mark. Traders have adjusted their interest rate predictions since Federal Reserve members appear hesitant to lower borrowing costs, further strengthening the US Dollar. Concerns about slow economic growth due to the US government shutdown may allow for more policy easing, which could cap USD gains. A soft market tone may help support gold prices and limit losses. Traders are being cautious ahead of the release of the FOMC Minutes on Wednesday and the delayed US Nonfarm Payrolls report on Thursday, both of which could influence the USD and gold prices.

Gold Price Influences

The chance of a 25 basis-point rate cut in December has dropped below 50%, affecting gold prices. Market participants are looking for US economic data to clarify future Fed interest rate decisions. If the economy shows weakness, it could lead to further easing by the Fed, reducing gold’s downside risk. Gold’s price might struggle below resistance around $4,100, but if it declines further, it could find support near $4,032. If it fails to hold this level, prices may drop to around $3,900. The Federal Reserve meets eight times a year to discuss monetary policy, impacting USD dynamics through interest rate changes. Gold prices are retreating as market expectations for a Fed rate cut in December soften. The latest Consumer Price Index (CPI) reading for October showed inflation steady at 3.5%, giving hawkish Fed members a reason to argue for maintaining higher rates for a more extended period. This has strengthened the US Dollar, which usually puts pressure on gold.

Market Events And Predictions

This week, key events include the FOMC meeting minutes on Wednesday and the delayed Nonfarm Payrolls report on Thursday. Analysts expect a weak jobs report, around 110,000, largely due to the government shutdown in October. This creates a tension between ongoing inflation and a potential economic slowdown. For traders anticipating a market downturn, a weak jobs report that isn’t weak enough to push the Fed into action could lead gold to test lower levels. A significant drop below the $4,032 support level could open the door for put options or short futures contracts targeting the psychological $4,000 mark. Historically, periods of high interest rates, like those in 2023, often precede sharp corrections in non-yielding assets when economic reality sets in. On the other hand, a much weaker-than-expected jobs report could alarm the market into thinking a recession is near, prompting the Fed to shift towards rate cuts. This scenario would likely weaken the dollar and increase gold prices, making call options attractive to capture a move back towards the $4,145 resistance. This situation would reflect market sentiment from late 2023, where weak data promptly shifted rate expectations and sparked a rally in gold. Given the major event risk this week, we can expect increased implied volatility, suggesting that option-based strategies could be a good approach. A long straddle—buying both a call and a put option at the same strike price—could allow traders to profit from significant price swings in either direction after Thursday’s payroll data, without having to predict the outcome. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now