Gold has recently shown the most extreme and violent price action, clearly illustrating the dramatic change in sentiment towards US monetary policy. Jerome Powell, Chair of the Federal Reserve, has already done the Fed’s most powerful magic trick—changing market sentiment. His assertion that rate cuts are not a sure thing has resounded loudly with investors. The result has been a violent unwind of hawkish market expectations for easing in December. In turn, this has undermined gold’s attractiveness as an investment.
As it stands today, the outlook is such that economic data yet to be released may start to indicate a downturn. If so, markets could begin pricing in some rate cuts as early as 2026. These advances would make gold more appealing, particularly given that gold is a non-yielding asset. Reducing the opportunity cost of holding gold makes it more attractive to investors. This monetary change usually benefits gold relative to interest-bearing assets. With the Fed’s aggressiveness finally dialing back, the forces at work on gold should be poised to continue changing for the better.
From early 2024 into the middle of 2025, gold goes up consistently. It was well respect of an upward trend channel, printing higher highs and higher lows. This bullish trend is a sign of how investors are reacting to the changing economic conditions and expected future monetary policy. According to the CME FedWatch Tool, the odds of a December cut have now fallen below 70%. This represents a huge drop from previously released estimates. This change is a recognition of the continued uncertainty about the US economic outlook and what it means for monetary policy.
As the US economy continues to provide mixed signals, the picture has become increasingly complicated for both policymakers and investors. Powell’s words echo around the world’s financial markets, but most importantly they influence expectations about US monetary policy. That influence subsequently pushes gold prices around. The recent price swings in gold illustrate how vulnerable it is to pivots or changes within the broader monetary landscape.