USD Strength and Fed Hawkishness Keep Gold Under Pressure: XAU/USD Forecast Shows Further Downside Risk

Gold stumbles to $4,030 as dollar appreciation accelerates

Gold (XAU/USD) has retreated below $4,050, trading near $4,030 levels during early Asian trading on Tuesday. The decline reflects a confluence of headwinds, with the US dollar continuing its rally for the third consecutive session. This USD appreciation directly impacts gold valuations, making the precious metal less accessible to international buyers outside the dollar zone.

Market participants reassess Fed rate-cut expectations

The shifting sentiment around monetary policy is proving detrimental to gold’s near-term prospects. Last week, expectations for a December rate cut exceeded 60%, but current market pricing through the CME FedWatch tool now reflects only a 45% probability of a 25 basis point reduction. This recalibration stems partly from hawkish commentary from Federal Reserve officials, with Atlanta Fed President Bostic and Kansas City Fed President Schmid recently emphasizing inflation concerns and signaling resolve to maintain current rate levels.

Key economic data on the horizon

Investors are awaiting Thursday’s September Nonfarm Payrolls (NFP) report, which could significantly influence market positioning ahead of the December policy decision. The labor market reading will provide crucial insights into the economic backdrop that the Fed must consider when determining its next course of action.

Geopolitical reserves add dimension to gold dynamics

In a separate development, China expanded its gold reserves by 15 tons during September, underscoring continued central bank demand for the precious metal. UBS strategists anticipate that incoming economic data before December’s Fed meeting will reinforce the case for another rate cut this cycle, though current market momentum appears to favor caution over aggressive easing.