The gold market has recently entered a period of consolidation, with a slight pullback, according to Kitco. This comes after an impressive rally that saw gold futures jump about $300 an ounce since late July, from below $2,400 an ounce.
The lack of any significant correction during this period underscores the bullish sentiment in the gold market.
Gold's recent rally has been partly fueled by signs of cooling US inflation, which appears to be moving towards the US Federal Reserve's (FED) 2% target.
This development led market participants to become overly optimistic about the timing of the Fed rate cut. As inflation began to decline, expectations of a Fed monetary policy adjustment increased, in fact pushing gold prices up by $300/ounce from late March to late September.
Despite the Fed's initial reluctance to implement a rate cut, the bullish market sentiment continued to support gold prices, resulting in sustained gains without any significant declines.
The Fed finally cut interest rates by 50 basis points on September 18. The move triggered a final gold rally, with December gold prices rising from $2,585 to an all-time record high of $2,708 an ounce on September 26.
However, gold prices began to decline last week as a stronger US dollar and higher Treasury yields put downward pressure on the metal. In the past seven trading days, gold has fallen five times, but not by much. The most recent decline, through September 30, was the steepest since hitting a record high.
This consolidation comes amid shifting expectations for the Fed’s future rate actions. Recent comments from Fed Chairman Jerome Powell have reduced the likelihood of another significant rate cut at the November meeting. The CME FedWatch tool currently shows an 84% chance of a 25 basis point rate cut, with a 16% chance of the Fed pausing rate cuts next month.
The change in market expectations may be due to the recent jobs report, which far exceeded economists' forecasts. The report showed that 254,000 jobs were added, far exceeding the expected 140,000 new jobs. Additionally, the unemployment rate fell to 4.1%.
