Gold prices took a significant dive on Tuesday, experiencing their largest percentage drop in over a month. This decline was primarily driven by a shift in market sentiment regarding the Federal Reserve’s upcoming interest rate cuts. Recent economic data, particularly the robust September jobs report, has tempered expectations for a more aggressive rate reduction.
Spot gold prices plummeted by 1.1% to $2,615.50 per ounce, marking a fifth consecutive day of losses. This downturn has pushed gold further away from its record high of $2,685.42, reached on September 26th. The decline in gold prices can be attributed to a combination of factors, including a pullback from recent gains, a rise in bond yields, and a diminished outlook for substantial interest rate cuts.
The CME FedWatch tool now indicates that markets are only pricing in an 87% chance of a quarter-point interest rate cut at the Fed’s November meeting. This is a significant shift from the previous expectation of a 50-basis-point reduction. The change in sentiment is a direct result of the stronger-than-expected September jobs data, which suggests a resilient labor market and a less urgent need for aggressive monetary policy easing.
Investors are keenly awaiting the release of the Federal Reserve’s meeting minutes on Wednesday, as well as the upcoming U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) data. While a decline in inflation is expected, it is unlikely to trigger renewed speculation about more significant rate cuts. This means that geopolitical risks will likely continue to be the primary driver of gold prices.
Gold has long been regarded as a safe haven asset, providing protection against economic and geopolitical uncertainties. In September, global physically backed gold exchange-traded funds (ETFs) registered their fifth consecutive month of inflows, with North American-listed funds increasing their holdings.
Other precious metals also experienced declines on Tuesday. Spot silver fell by 4.2%, platinum by 1.7%, and palladium by 1.7%.
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