The Fed's interest rate cut expectations suddenly reversed, revealing the truth behind the $24 plunge in gold

Thursday’s financial markets can be described as a complete “reversal drama.” Spot gold touched a three-week high of $4244.94/oz during trading, then plummeted to close at $4171.36/oz, a daily drop of $23.90. The core reason for this sharp decline is not simply the government reopening, but a dramatic shift in market expectations regarding the Federal Reserve’s rate cut prospects in December.

Rate Cut Expectations Hit Hard, Gold Loses Support

Traders’ attitudes toward rate cuts have completely reversed. According to the latest data, the probability of the Fed cutting rates by 25 bps at the December meeting has fallen below 50%, a sharp decline from 62.9% the previous day. This shift directly hits the heart of gold—since rate cuts are usually bullish for gold, the disappearance of market expectations means this asset has lost a key support.

An increasing number of Fed officials are signaling caution. San Francisco Fed President Daly stated that after two rate cuts, the risks to price stability and full employment are balanced, and the December rate decision should remain open. Cleveland Fed President Mester was more direct—monetary policy should stay at a level capable of reducing inflationary pressures, implying opposition to further rate cuts in the near term. St. Louis Fed President Bullard also warned that current rates are close to neutral, and continued easing could over-stimulate the economy.

Multiple Factors Converge, Market Faces Collective Sell-Off

After 43 days of government shutdown, operations resumed, which should have brought relief, but instead triggered a classic “buy the rumor, sell the fact” market reaction. Independent metals trader Tai Wong pointed out that this is not just a gold sell-off; precious metals, stocks, bonds, the dollar, and even cryptocurrencies are under pressure. This is a typical market response following government reopening.

Profit-taking has also worsened the situation. Gold had previously rallied for several trading days, and this pullback prompted some investors to take profits. As rate cut expectations fade and safe-haven demand weakens simultaneously, gold lacks upward momentum.

U.S. stocks experienced a fierce sell-off on Thursday, with investor expectations for future interest rates weakening significantly. The Dow plunged 797.6 points (1.65%), the S&P 500 fell 1.66%, and the Nasdaq dropped 2.29%. All three indices posted their worst daily performance since October 10, with broad market focus on overvaluation pressures and the actual benefits of AI capital expenditures.

Economic Data Gap, Market Volatility to Continue

Juan Perez, head of trading at Monex USA in Washington, expressed concern reflecting the market’s reality: although the government shutdown has ended, key economic data for September and October are still being released, leaving the market without reliable statistical foundations. This suggests that high volatility may persist until the full economic data is reissued.

Technical Outlook May Hit New Lows

From a technical perspective, FXStreet analyst Christian Borjon Valencia noted that while the upward trend in gold has not been broken, if the daily price cannot stay above $4200, buying pressure is weakening. The RSI (Relative Strength Index) is nearly flat, indicating a waning bullish momentum.

Once gold breaks below $4200/oz, selling obstacles will be cleared, and prices could test $4100/oz. If it further breaks below the 20-day simple moving average (SMA) at $4074, the next key support is near the October 28 low of $3886/oz.

Behind the sharp decline in gold is not merely a technical correction but a fundamental shift in market perception of monetary policy prospects. With the Fed turning more cautious and economic data still recovering, this wave of gold decline may just be the beginning.