[Financial Recap] Gold Falls Below $4,000 as a Packed Central Bank Week Tests Bulls’ Ability to Defend Key Support!

Spot gold fell below the psychologically significant $4,000-per-ounce level last Friday, hitting a three-month low and recording its largest weekly decline in more than four months. As trading began on Monday, prices continued to hover around $4,000, with little sign that market sentiment had improved over the weekend.

Persistently rising energy prices, renewed inflation concerns, and shifting expectations for Federal Reserve policy have been the main forces weighing on gold. Meanwhile, geopolitical uncertainty and a packed week of central bank decisions are adding further uncertainty to the outlook.

Heightened inflation concerns suggest that major central banks may be unable to ease monetary policy as quickly as previously anticipated, posing a clear headwind for gold bulls. Meanwhile, a sharp correction in technology stocks, particularly AI-related shares, has triggered margin pressures. Some equity traders and investors facing margin calls have sold gold holdings to raise cash, adding to selling pressure on precious metals.

This week, market attention is turning firmly toward the Federal Reserve’s October 27–28 policy meeting. Traders broadly expect the Fed to hold interest rates at 3.75%–4.00%, with the FedWatch tool at one point indicating a probability of more than 90% for an unchanged decision. However, markets continue to price in a substantial likelihood of a December rate hike, with the probability approaching 80%.

Previously released consumer and producer inflation figures exceeded expectations, reinforcing the “higher for longer” interest rate narrative. The personal consumption expenditures (PCE) price index, the Fed’s preferred inflation gauge, is due later this week and will provide further clues. A stronger reading, combined with persistently elevated oil prices, could fuel additional bets on further rate increases, keeping gold under pressure.

Beyond the Fed, the European Central Bank, Bank of Japan, Reserve Bank of New Zealand, and Bank of Canada will also announce interest rate decisions this week, making it a major week for global monetary policy.

The ECB is widely expected to leave rates unchanged, although political and fiscal concerns in France have already weighed on the euro. In Japan, core inflation exceeded the 2% target in September for the first time in nine months, strengthening the case for further near-term tightening. Expectations for a December rate hike by the Bank of Japan have consequently increased. Even subtle shifts in these policy signals could influence gold prices through exchange rates and global liquidity conditions.

Market Commentary:

Over the longer term, gold retains some structural support. Uncertainty surrounding global geopolitical conflicts, widening fiscal deficits in major economies, and demand from central banks seeking to allocate reserves to gold remain supportive factors over the medium to long term.

In the near term, however, real interest rates and the US dollar remain the dominant drivers. As long as markets continue to price in the possibility of another Federal Reserve rate hike before year-end, gold’s upside potential is likely to remain constrained.