[Financial Recap] Gold Drops Below $4,000: Can Bulls Defend Key Support During a Busy Central Bank Week?

Sentiment towards spot gold remained subdued as Monday’s trading opened, with prices still hovering around $4,000 and little evidence of an improvement over the weekend. Last Friday, the metal slipped below the psychologically important $4,000-per-ounce mark, touching a three-month low and posting its steepest weekly fall in more than four months.

Gold has come under pressure chiefly from a sustained rise in energy prices, resurgent inflation worries and changing expectations for Federal Reserve policy. The outlook is further clouded by geopolitical uncertainty and a busy schedule of central bank decisions this week.

With inflation concerns intensifying, major central banks may have less scope to loosen monetary policy as rapidly as previously expected, creating a clear obstacle for gold bulls. At the same time, steep losses in technology stocks, especially AI-related shares, have generated margin pressures. To meet margin calls and raise cash, some equity traders and investors have liquidated gold holdings, intensifying selling across precious metals.

The Federal Reserve’s October 27–28 policy meeting is the key focus for markets this week. An unchanged interest rate range of 3.75%–4.00% is widely anticipated by traders; at one stage, the FedWatch tool put the probability of that outcome at more than 90%. Yet a December rate hike remains a significant part of market pricing, with its implied probability nearing 80%.

Above-forecast consumer and producer inflation data released earlier have strengthened the case for interest rates staying “higher for longer”. Further guidance will come later this week from the personal consumption expenditures (PCE) price index, the Fed’s preferred measure of inflation. Should that reading be stronger, persistently high oil prices could compound its impact, encouraging further bets on additional rate hikes and maintaining pressure on gold.

This week’s global monetary policy calendar extends well beyond the Fed: interest rate decisions are also due from the European Central Bank, Bank of Japan, Reserve Bank of New Zealand and Bank of Canada. Together, these announcements make it a significant week for global monetary policy.

Although the ECB is broadly expected to keep rates steady, the euro has already faced pressure from political and fiscal concerns in France. Japan’s September core inflation reading, meanwhile, moved above the 2% target for the first time in nine months, bolstering the argument for additional tightening in the near term. As a result, expectations of a December rate increase by the Bank of Japan have strengthened. Through exchange rates and global liquidity conditions, even minor changes in these policy signals could affect gold prices.

What Is Shaping Gold’s Outlook?

Some structural sources of support for gold remain intact over the longer term. Over the medium to long term, the metal continues to draw support from uncertainty over global geopolitical conflicts, expanding fiscal deficits in major economies and demand from central banks looking to allocate reserves to gold.

For the near term, though, the principal influences remain real interest rates and the US dollar. Gold’s scope to rise is likely to stay limited while markets factor in the possibility of another Federal Reserve rate increase before the year ends.