Gold Under Pressure as Strong Dollar and Fed Caution Weigh on Sentiment

Gold prices remained under pressure on Tuesday, weighed down by a stronger US Dollar (USD) and a cautious tone from the Federal Reserve (Fed). At the time of writing, spot gold (XAU/USD) was trading around $3,937 per ounce.

The metal appears to be in a healthy consolidation phase following its correction from the record high of $4,381 reached on October 16. A pullback in global equities helped to limit losses in bullion, as a softening risk appetite lent some support. However, upside potential remains limited amid reduced safe-haven flows and fading expectations for another Fed rate cut this year.

Despite near-term weakness, the broader uptrend remains intact, underpinned by ongoing geopolitical and economic uncertainties that continue to keep investors cautious. Meanwhile, the prolonged US government shutdown is weighing on overall market sentiment.

In Asia, China’s new VAT rules on gold have disrupted the domestic bullion market. Several state-owned banks have reportedly halted physical gold redemptions and the opening of new retail accounts as authorities move to cool speculative demand. The revised policy cuts the VAT exemption on certain gold transactions from 13% to 6%, a move expected to temporarily curb retail demand in one of the world’s largest physical gold markets.

In the US, Fed officials delivered mixed messages on Monday.

Fed Governor Lisa Cook noted that inflation remains above the 2% target and could stay elevated through next year due to tariff effects. She emphasized that policy must remain “appropriately focused” on restoring price stability, adding that the recent 25-basis-point rate cut was justified amid rising downside risks to employment.

Conversely, Chicago Fed President Austan Goolsbee expressed concern over front-loading rate cuts, describing inflation as still “worrisome.” Meanwhile, Fed Governor Stephen Miran warned that it’s “a mistake to draw conclusions about monetary policy from financial conditions alone.” Goolsbee said the threshold for additional easing is now higher than at the past two meetings, while Miran suggested that the Fed could reach a neutral stance through a series of 50-basis-point cuts, without needing larger 75-basis-point moves.

Following these comments, markets reassessed the likelihood of a December rate cut, with traders now pricing in roughly a 70% chance of a 25 bps cut, according to the CME FedWatch Tool—down from 94% a week ago, but slightly above Monday’s 65%.

Investment bank UBS maintained that the recent gold pullback is temporary, keeping its $4,200 per ounce forecast intact, with a potential upside target near $4,700 should geopolitical or market risks intensify. The bank stated that “the much-anticipated correction has paused,” noting that while fading momentum triggered a second decline in futures open interest, underlying demand remains strong, and there is “no fundamental reason for the sell-off.”