International gold prices plummet over $23! Federal Reserve rate cut expectations "change face" as the market plunges into turmoil

The Federal Reserve’s Shift in Stance Causes Sudden Drop in Rate Cut Expectations

Market sentiment has suddenly changed. As several Federal Reserve officials recently issued cautious signals, expectations for a further rate cut in December have been severely undermined. Traders’ probability estimates have fallen below 50% from the previous day’s 62.9%, and market confidence in the Fed’s continued easing policy has noticeably wavered.

San Francisco Fed President Daly pointed out that, given the Fed has already implemented two rate cuts this year, the current policy is approaching a balance concerning the two main goals of price stability and maximum employment, thus remaining open to December decisions. Meanwhile, Cleveland Fed President Mester issued a more hawkish stance, emphasizing that monetary policy should remain at a level capable of effectively reducing inflation pressures, implying opposition to further rate cuts. St. Louis Fed President Bullard went further, stating that current interest rates are close to neutral, and excessive easing could over-stimulate the economy.

Government Shutdown Ends, “Buy the Rumor, Sell the News” Market Begins

After 43 days, the government shutdown has finally ended, with federal funding extended until January 30, 2024. However, this “positive” event triggered an unexpected wave of selling. Financial markets on Thursday faced heavy pressure, exemplifying the classic “buy the rumor, sell the news” phenomenon.

Independent metals trader Tai Wong noted that precious metals experienced widespread selling, not only gold but also stocks, bonds, the US dollar, and even cryptocurrencies all faced similar selling pressure. Juan Perez, head trader at Monex USA in Washington, expressed deeper concerns: even though the shutdown is over, when can normal operations resume? When will the damaged economic data be fully recovered? The market still needs to wait for reliable statistics from September and October for accurate analysis.

International Gold Prices Retreat, US Stocks Drop Sharply

On Thursday, spot gold closed down sharply by $23.90, at $4,171.36 per ounce, retreating from the three-week high of $4,244.94 per ounce reached intraday. The price correction reflects both the fading expectations of Fed rate cuts and weakening safe-haven demand.

This wave of selling was not limited to gold. The three major US stock indices experienced their worst single-day performance since October 10: the Dow fell 797.6 points( down 1.65%), the S&P 500 plunged 1.66%, and the Nasdaq dropped 2.29%. Investors’ outlook on future interest rate policies has weakened, and concerns about high valuations and whether AI capital expenditures can meet expectations have further accelerated downward momentum.

Diminishing Rate Cut Expectations Reduce Safe-Haven Appeal

Initially, the market anticipated that the end of the government shutdown would lead to the release of economic data reflecting a soft labor market, thereby boosting expectations for a 25 bps rate cut by the Fed in December, which supported a rebound in gold. Jim Wyckoff, senior analyst at Kitco Metals, reviewed this process but also pointed out that the increasingly cautious attitude of Fed officials and their ongoing concerns about inflation have thoroughly changed market expectations.

FXStreet analyst Christian Borjon Valencia believes that the US-China trade truce and the end of the government shutdown could be negative factors, pushing gold prices lower. Usually, rate cuts are favorable for gold, as gold itself does not generate interest and is viewed as a safe-haven asset during economic uncertainty. Fed Chair Powell emphasized last month that whether to cut rates in December is “far from certain,” a statement that initially boosted the dollar but has seen trading momentum gradually weaken. Sarah Ying, head of FX strategy at CIBC Capital Markets, noted that the trading activity related to this has significantly declined.

Technical Pressure and Risks of Further Decline

From a technical perspective, the upward trend in gold remains intact, but buying pressure is weakening. Christian Borjon Valencia pointed out that the RSI( (Relative Strength Index) is moving sideways, indicating that upward momentum appears to be waning. More critically, gold closed below the important support level of $4,200 per ounce on Thursday, clearing the way for further declines.

Analysts predict that gold may first fall toward $4,100 per ounce, then break below the 20-day simple moving average at $4,074. If this support is lost, the next target could be near the October 28 low of around $3,886 per ounce. Before US economic data begins to recover and be released gradually, the market’s high volatility situation may persist, and investors should be prepared for further adjustments in international gold prices.