Following Donald Trump's victory in the US presidential election, the US dollar strengthened significantly, putting downward pressure on gold prices. The dollar index rose 0.6% for the week, reaching its highest level since July, while gold fell, reflecting risk-off sentiment among traders who poured money into assets that could benefit from President Trump's economic policies. Spot fell 1.8%. President Trump's anticipated fiscal and trade policies, particularly tariffs and tax cuts, have stoked inflation concerns, which has spurred bond yields to rise. As a result, the yield on the 10-year Treasury rose to 4.47%, making non-yielding assets like gold less attractive.
Fed rate cuts and cautious forward guidance
The Fed cut interest rates by 25 basis points, bringing the federal funds rate to a range of 4.5% to 4.75%, consistent with market expectations. However, Fed Chairman Jerome Powell emphasized economic resilience and inflation expectations rather than rapid monetary easing, and signaled a cautious stance on future interest rate cuts. Market expectations for further rate cuts have waned, with the FedWatch tool currently suggesting there is a 75% chance of another rate cut in December, but a pause in January. Gold's short-term bullish momentum has weakened.
Weak demand in major cash markets
In addition to macroeconomic pressures, physical demand for gold also showed signs of weakening. In India, one of the biggest consumers of gold, buying appetite waned after strong festival sales, while demand remained moderate in Japan and Singapore. This decline in physical demand further weighed on market sentiment, further strengthening the overall bearish trend.
Future economic data: CPI and PPI outlook
Looking ahead, traders are now focusing on next week's Consumer Price Index (CPI) and Producer Price Index (PPI) data. These data are important indicators of inflation trends that can shape future Fed policy. The CPI report, to be released on November 13, predicts headline inflation to be 2.6% year-on-year, up from 2.4% in September and 0.2% month-on-month. Meanwhile, the PPI, which remained flat in September, will provide further insight into inflationary pressures. A high PPI value is likely to support the dollar as it signals inflationary pressures on production costs, which could lead to Fed policy tightening.
Market Forecast: Bearish outlook as dollar and yields rise
A stronger dollar and higher yields put gold at potential downside risk next week. If CPI and PPI numbers match expectations and confirm the inflation story, the Fed's cautious stance on rate cuts could further hinder gold's appeal. Traders will be closely watching for signs that inflation data will likely prompt further Fed tightening and maintain the bearish outlook for gold.
