The gold market has entered a phase of consolidation, showing a slight decline after a strong rally in recent months. Since late July, gold futures surged nearly $300, rising from just below $2,400 per ounce to reach record highs. The lack of any significant correction during this rally highlighted the positive sentiment in the market.
Gold’s rapid rise to record levels was driven by signs that inflation was cooling and moving closer to the Federal Reserve’s 2% target. As inflation eased, investors grew optimistic about the possibility of the Fed lowering interest rates sooner rather than later. This optimism pushed gold prices up by $300 from March to September.
Even though the Federal Reserve was slow to cut rates initially, the bullish mood surrounding gold remained strong, allowing prices to continue climbing. The Fed eventually reduced rates by 50 basis points on September 18, which triggered another surge in gold prices. By September 26, gold hit an all-time high, with December contracts reaching $2,708.
However, last week saw gold prices begin to ease as the U.S. dollar strengthened and treasury yields rose, putting pressure on the market. Over the past week, gold prices fell five out of seven trading days, but these declines have not yet reached the point of a significant correction. The most notable drop came on September 30, marking the largest decrease since gold hit its record high.
As of 6 PM EDT, December gold futures were down by $11.30, settling at $2,661.90. This consolidation phase comes as market expectations for the Fed’s next moves begin to shift. Recent comments from Fed Chairman Jerome Powell have dampened hopes for another major rate cut in November. The CME FedWatch tool now shows an 84% chance of a smaller, 25-basis point cut, while a 16% chance remains for no cut at all.
This shift in market sentiment is largely due to a stronger-than-expected jobs report. The U.S. economy added 254,000 jobs, far surpassing the 140,000 forecasted, and the unemployment rate fell to 4.1%, adding complexity to the economic outlook.
While gold’s recent rally has not seen any major corrections, many experts believe the market is due for one soon. However, the situation could change depending on geopolitical events, such as a potential retaliation by Israel against Iran following last Tuesday’s attack. U.S. President Joe Biden has stated that Israel has the right to respond, though he urged a proportional response. Such developments could impact global markets, including gold.