Gold’s Rally Stalls as Fed Policy Shifts Expectations

Gold's remarkable upward trajectory faces potential disruption following recent economic developments. The precious metal, which has gained over 50% this year and reached consecutive record highs throughout October, now confronts headwinds from unexpectedly positive economic indicators. Surprisingly strong U.S. employment data and hawkish signals from the Federal Reserve have substantially diminished expectations for additional interest rate reductions. Market participants now question whether gold is entering an extended correction period or merely experiencing a healthy consolidation before resuming its climb.

The recently published minutes from October's policy meeting provided significant insight into central bank thinking. Despite implementing a 25 basis point rate cut, numerous Fed officials expressed reservations about further monetary easing. Persistent inflation concerns emerged as the primary reason for their cautious stance, suggesting a more measured approach to future rate decisions.

This development compounds existing pressures on gold markets. The strengthening U.S. dollar presents an additional challenge, making dollar-denominated gold more expensive for international buyers and traditionally dampening demand. The combined effect of Federal Reserve hawkishness and dollar appreciation is now fully impacting gold valuations.

Labor Market Strength Undermines Rate Cut Prospects

Recently released September employment data delivered disappointing news for gold enthusiasts. The United States economy generated 119,000 new positions, more than doubling expectations. While initially appearing as positive economic news, these figures create adverse conditions for gold investors. A robust labor market reduces pressure on the Federal Reserve to implement further interest rate reductions.

The market response was immediate and pronounced. Probability forecasts for a December rate cut collapsed to just 40%, representing a substantial decline from previous trader expectations. This shift creates particularly challenging conditions for gold, which generates no ongoing yield and becomes less attractive when interest rate reduction prospects diminish.

Should investors sell immediately? Or is it worth buying Gold?

Primary factors exerting pressure on gold:
- December rate cut probability declined to 40%
- U.S. dollar strengthening against major currencies
- Fed meeting minutes revealed central bankers' inflation concerns
- Gold's appeal diminishes in rising interest rate environments

UBS Maintains Bullish Outlook Despite Current Weakness

Notably, while gold faces downward pressure, UBS has increased its mid-2026 price target by $300 to $4,500 per ounce. The Swiss financial institution cites three supporting factors: anticipated U.S. rate reductions next year, ongoing geopolitical uncertainties, and sustained demand from both central banks and ETF investors.

This optimistic projection creates an intriguing contrast with current market softness. Despite recent pressure, gold maintains a year-to-date advance exceeding 50% and reached a record peak of $4,381 in October, preserving the longer-term upward trend. The crucial question remains: how significant might the current correction become before the next upward wave commences?

Broad Precious Metals Sector Faces Selling Pressure

Gold isn't alone in experiencing declines. Silver demonstrated more pronounced weakness, falling 1.7%, while platinum declined 2.3%. Palladium registered relatively modest losses by comparison. This widespread selling activity indicates a sector-wide rotation away from precious metals rather than isolated pressure on gold.

Following the substantial advances recorded in recent months, a consolidation phase appears almost inevitable. Whether this develops into an extended period of weakness or merely represents a brief pause depends heavily on upcoming Federal Reserve decisions and continued evolution of U.S. labor market conditions. One reality remains clear: the celebratory atmosphere surrounding gold's performance has temporarily subsided.