Gold Declines Below $4,050 as US Dollar Surges and Fed Signals Hawkish Stance

XAU/USD Struggles Against Strong USD Performance

Gold prices have retreated to approximately $4,030 during early Asian trading on Tuesday, extending recent weakness as market participants reassess their expectations for monetary policy. The yellow metal faces headwinds from multiple directions, with the US Dollar posting its third consecutive day of gains, making bullion less attractive for international buyers holding alternative currencies.

Federal Reserve Rhetoric Amplifies Selling Pressure

Recent comments from Federal Reserve officials are playing a significant role in dampening gold’s appeal. Both Atlanta Fed President Bostic and Kansas City Fed President Schmid have expressed concerns regarding inflation trends or advocated for maintaining current interest rate levels. These hawkish positions stand in contrast to earlier market expectations of a near-term policy adjustment.

The probability of a 25 basis point rate reduction in December has declined noticeably, now priced at 45% according to the CME FedWatch tool, compared to over 60% just seven days ago. This shift reflects the market’s evolving assessment of the Fed’s commitment to price stability.

Macroeconomic Data Will Shape Market Sentiment

Looking ahead, market participants are preparing for the release of the September Nonfarm Payrolls report on Thursday. This employment data will provide crucial insight into the labor market’s health and could influence broader expectations surrounding future Fed decisions. Additionally, traders remain focused on the implications of the recent government shutdown conclusion and its impact on delayed economic statistics.

Global Context: China’s Gold Accumulation

While developed market dynamics weigh on gold prices, it’s notable that China expanded its official gold reserves by 15 tons during September. This continued accumulation underscores persistent demand for the precious metal from major central banks, even as spot prices face near-term pressure.

UBS strategists contend that the collection of economic indicators due before December’s Fed meeting may insufficient to prevent market momentum toward anticipating a third rate cut within the current calendar year, though near-term weakness appears probable if dollar strength persists.