Gold Continues to Oscillate and Adjust as Inflation Expectations Rise and Federal Reserve Delays Rate Cuts

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Source: Huitong Finance

The international gold market has recently experienced a high-level correction. Spot gold (XAU/USD) is trading near $5,000 in the Asian session, down from previous highs. The core factor driving this adjustment is not a decline in safe-haven demand, but a shift in macro expectations, especially regarding inflation and interest rate paths.

Market surveys show that ongoing tensions in the Middle East are keeping international crude oil prices around $95 per barrel, with concerns about energy supply disruptions continuing to grow. Against this backdrop, inflation expectations are rising again, challenging the previously widely expected easing policies. As a typical non-yielding asset, gold’s attractiveness has temporarily decreased as interest rates remain high or even delay their decline.

“With oil prices rising, inflationary pressures will re-emerge, weakening the central banks’ motivation to cut interest rates, which is bearish for gold.” —Market opinion

From a policy expectation perspective, the Federal Reserve is likely to keep interest rates unchanged at the upcoming FOMC meeting, in the 3.50%-3.75% range. Meanwhile, the interest rate futures market shows traders have largely ruled out multiple rate cuts this year, even delaying the first cut until the end of the year. This shift in expectations has directly boosted the dollar and put pressure on gold.

Logically, the current correction in gold is a typical “real interest rate-driven pullback.” When the market expects interest rates to stay high for an extended period, the opportunity cost of holding gold increases, and funds tend to flow into higher-yield assets like the dollar or U.S. Treasuries, leading to a decline in gold prices.

At the same time, although geopolitical risks remain, market allocations to safe assets are diverging. Some funds are shifting into the dollar rather than gold, indicating that the dollar’s “interest rate attribute” is currently outweighing gold’s “safe-haven attribute.” This structural change is one of the key reasons for this round of gold correction.

From a longer-term perspective, the core support logic for gold has not fundamentally changed. The global economy still faces uncertainties, structural inflation pressures persist, and central bank policy paths remain uncertain. These factors continue to provide medium-term support for gold. Therefore, this correction is more of a trend adjustment rather than a trend reversal.

Technically, on the daily chart, gold previously maintained a strong upward trend but showed signs of stagnation near the $5,000 level. Multiple attempts to break higher failed, indicating increased selling pressure above. Key support levels are now around $4,850-$4,800. A break below this zone could trigger a deeper correction; however, the overall structure remains in a high-level oscillation pattern, and the trend has not fully turned bearish.

On the 4-hour chart, gold has entered a consolidation range, with the price slightly shifting downward, short-term moving averages flattening or turning downward, indicating weak short-term momentum. Meanwhile, momentum indicators show a divergence at the top and are gradually recovering, suggesting the market is digesting previous upward momentum. If the dollar continues to strengthen, gold may test lower supports; conversely, if the dollar weakens, gold could re-enter an upward channel.

Editor’s Summary

Overall, the current gold correction mainly stems from rising inflation expectations and adjustments in interest rate outlooks, rather than a disappearance of safe-haven demand. With oil prices remaining high, the Fed’s rate cut expectations have been significantly delayed, and a stronger dollar is exerting downward pressure on gold. In the short term, gold may continue to oscillate and adjust, awaiting new catalysts. From a medium-term view, as long as global uncertainties persist, the bullish structure for gold remains intact. However, a resumption of upward movement depends on a weakening dollar and a decline in oil risk premiums.

FAQs

Q1: Why does rising oil prices suppress gold?

A1: Rising oil prices typically boost inflation expectations, which can influence central bank monetary policies. When inflation pressures increase, central banks are more likely to keep interest rates high, reducing expectations for rate cuts. Since gold does not generate interest income, higher interest rates raise its opportunity cost, making it less attractive and putting downward pressure on prices.

Q2: How significant is the impact of the Fed delaying rate cuts on gold?

A2: The Fed’s interest rate policy is a key factor influencing gold prices. When rate cut expectations are postponed, yields on dollar assets stay high, encouraging funds to stay in dollar-denominated assets and reducing demand for gold. Higher interest rates also increase real interest rates, directly suppressing gold. Therefore, changes in rate cut expectations often cause noticeable volatility in gold prices.

Q3: Is current gold movement a trend reversal or a normal correction?

A3: The current movement is more likely a normal correction within the trend. The long-term support factors for gold—such as global economic uncertainties, inflation pressures, and geopolitical risks—have not fundamentally changed. This correction is mainly due to short-term macro expectations shifts, like interest rate outlooks and dollar strength. As long as key support levels are not broken, the medium-term bullish structure remains.

Q4: Why does the dollar suppress gold?

A4: The dollar and gold are usually negatively correlated. When the dollar strengthens, the appeal of dollar assets increases, and gold priced in dollars becomes more expensive for foreign investors, reducing demand. Additionally, a stronger dollar often accompanies rising or expected interest rates, which increases the opportunity cost of holding gold and exerts downward pressure on its price.

Q5: When might gold re-enter an upward trend?

A5: Gold could resume an upward trend if several conditions are met: firstly, the dollar shows a clear trend of weakening, often linked to renewed rate cut expectations; secondly, oil prices decline, easing inflation pressures and allowing more room for easing policies; thirdly, market safe-haven sentiment rises again, triggered by geopolitical risks or increased financial market volatility. When these conditions align, gold is likely to re-enter an upward channel.