Federal Reserve rate cut expectations reverse, gold prices fall to a one-week low, policy shift becomes the main reason

The shift in attitude among Federal Reserve officials has caused a ripple effect. As the Washington government ends a 43-day shutdown, financial markets are undergoing a new round of reassessment. Among them, the precious metals market bears the brunt, with spot gold experiencing significant selling pressure on Thursday, November 13, (, marking the largest single-day decline in recent times.

The Truth Behind the Drop in Gold Prices: A Major Reversal in Policy Expectations

Market sentiment regarding a rate cut by the Federal Reserve in December has undergone a dramatic change. According to the latest trader estimates, the probability of the Fed cutting interest rates by 25 basis points at the December meeting has fallen below 50%, down from 62.9% the previous day. This reversal in expectations has directly impacted the gold price trend.

Spot gold closed Thursday down $23.90 at $4,171.36 per ounce. During the session, it briefly touched a three-week high of $4,244.94 per ounce, but subsequently accelerated its decline amid the resumption of government operations and economic data falling short of expectations. FXStreet analyst Christian Borjon Valencia believes that weakening safe-haven demand is a key factor, with signals of a US-China trade truce and the end of the government shutdown creating an unfavorable environment for gold prices.

Market Sentiment Imbalance: The Classic “Buy the Rumor, Sell the News” Scenario

The end of the government shutdown was initially seen as positive, as markets anticipated that upcoming economic data would bring new trading opportunities. However, reality proved otherwise. Independent metals trader Tai Wong pointed out that this is a typical “buy the rumor, sell the news” pattern, with not only precious metals experiencing broad sell-offs, but stocks, bonds, the US dollar, and cryptocurrencies also coming under pressure simultaneously.

Juan Perez, head of trading at Monex USA in Washington, expressed market concerns: although the government shutdown has ended, economic data remains sparse, with reliable statistics for September and October yet to be fully disclosed, creating uncertainty and leading to high volatility.

The Fed’s Attitude Shift: From Easing Expectations to Cautious Observation

The Fed’s internal stance on further rate cuts has clearly become more cautious. Jim Wyckoff, senior analyst at Kitco Metals, noted that although the market initially was bullish on gold due to expectations that weak employment data would be released after the government reopened, this outlook was completely reversed as more Fed officials expressed concerns about inflation.

Fed Chair Jerome Powell emphasized last month that whether the December rate cut will happen “remains to be seen,” which initially boosted the US dollar, although trading momentum has gradually waned. San Francisco Fed President Mary Daly stated on Thursday that after two rate cuts this year, the risks to achieving stable prices and full employment are now balanced, leaving the December rate decision open.

Cleveland Fed President Loretta Mester’s stance is more hawkish, emphasizing that monetary policy needs to stay at a level capable of reducing inflation pressures, implying opposition to recent rate cuts. St. Louis Fed President James Bullard directly stated that current interest rates are closer to neutral, with limited room for further easing, and continued rate cuts could over-stimulate the economy.

US Stocks Plunge Significantly, Risk Assets Broadly Under Pressure

Pessimism about rate cut prospects has spread across the entire stock market. On Thursday, US stocks experienced a sharp sell-off, with the Dow dropping 797.6 points ), down 1.65%(, the S&P 500 falling 1.66%, and the Nasdaq declining the most at 2.29%. All three major indices posted their worst single-day performance since October 10.

Investors are generally concerned about high valuation pressures and are reassessing whether artificial intelligence capital expenditure can translate into broader productivity gains as expected. The shift in policy expectations, combined with reevaluation of tech stock valuations, has collectively undermined market confidence.

Technical Outlook for Gold Faces Tests, Downside Space Opens

From a technical perspective, Christian Borjon Valencia pointed out that the upward trend in gold still exists, but buying momentum has clearly weakened. The key is whether gold can hold above $4200 per ounce — it closed below this level on Thursday, with the relative strength index )RSI( nearly flat, indicating a gradual decline in bullish momentum.

As the $4200 level is broken, bears are likely to push gold prices down toward $4100 per ounce, possibly breaking below the 20-day simple moving average at $4074. Once this level is breached, the next target will be near the October 28 low of approximately $3886 per ounce. Currently, technical support for gold prices appears to be diminishing.

Outlook: High Volatility Amid Data Gaps

Analysts suggest that until US economic data resumes more regular release, high volatility in the markets may persist. The Fed’s policy stance, subsequent inflation data, and US-China trade developments will be key variables influencing gold prices. In the short term, downward pressure on gold may be difficult to quickly alleviate.