Behind the nearly $24 plunge in gold: The Fed's rate cut expectations suddenly reversed

Thursday( November 13), gold price movements can be described as twists and turns. Spot gold surged to $4244.94 per ounce in the early session, hitting a new high since October 21, but was then met with fierce selling, ultimately closing down $23.90 at $4171.36 per ounce. Behind this sudden plunge, the real driver was actually the rapid reversal of the Fed’s rate cut expectations.

Rate Cut Expectations Cool Down Suddenly, Market Sentiment Changes

Market expectations for a rate cut by the Federal Reserve in December have undergone dramatic changes. Traders now estimate that the probability of the Fed cutting interest rates by 25 basis points at the December meeting has fallen below 50%, a sharp drop from 62.9% the previous day. This dramatic shift in expectations directly impacted gold prices.

Jim Wyckoff, senior analyst at Kitco Metals, pointed out that initially, the market expected that economic data released after the government shutdown would show a soft labor market, thereby pushing the Fed to cut rates in December. However, over time, more Fed officials have shown caution about further rate cuts, mainly concerned about inflation issues, and with two rate cuts already this year, the employment market has instead shown relatively stable signs.

Policy Stance Shift, Officials Frequently Hit the Brakes

The most critical factor is the change in the stance of the Fed decision-makers. Fed Chair Powell emphasized last month that further rate cuts this year are “not a done deal,” which at the time boosted the dollar. San Francisco Fed President Daly said on Thursday that, given the completion of two rate cuts, the risks to achieving stable prices and maximum employment are now balanced, and she remains open to December’s decision.

But the more hawkish voices are from officials like Cleveland Fed President Mester, who said that monetary policy needs to stay at a level that can reduce inflationary pressures, implying a tendency against further rate cuts. St. Louis Fed President Bullard also stated plainly that current interest rates are close to neutral, with limited room for easing, and further rate cuts could over-stimulate the economy.

Broader Market Sell-Off Wave

The decline in gold is just a reflection of the changing market sentiment. On Thursday, US stocks experienced a fierce sell-off: the Dow plunged 797.6 points( down 1.65%), the S&P 500 fell 1.66%, and the Nasdaq dropped 2.29%, with all three indices posting their worst single-day performance since October 10.

Independent metals trader Tai Wong commented, “Precious metals, stocks, bonds, the dollar, and cryptocurrencies are all under pressure. This is typical ‘buy the rumor, sell the news’ market after the government reopens.” Sarah Ying, head of FX strategy at CIBC Capital Markets, believes that although Powell’s comments initially boosted the dollar, the momentum behind related trades has gradually weakened.

Additionally, the US government resumed operations after ending a 43-day shutdown, and the US-China trade truce also became a bearish factor, further suppressing safe-haven demand. Juan Perez, trading director at Monex USA in Washington, pointed out that high market volatility may continue until economic data is gradually released.

Technical Pressure and Further Downside Risks Emerge

From a technical perspective, the upward trend of gold remains intact, but buying pressure is weakening. FXStreet analyst Christian Borjon Valencia noted that the Relative Strength Index(RSI) is nearly flat, indicating that the bullish momentum is waning. The key is whether the daily close can hold above $4200 per ounce—once this level is broken, it will clear the way for sellers.

If gold falls below $4200 per ounce, the next target will be $4100, followed by support at the 20-day simple moving average(SMA) at $4074. If that level is broken, the October 28 low( near $3886) will become the next line of defense.

Overall, the core driver of gold’s decline is the reversal of the Fed rate cut expectations. Under the dual influence of recovering economic data and changing policy signals, market safe-haven demand for gold has significantly weakened, and short-term volatility is expected to remain high.