Market Pullback: Gold Dips as Dollar Gains Traction Amid Fed Policy Shifts

Gold retreated from recent record highs this Friday, settling below the $4,600 per ounce mark as market participants reassessed expectations for monetary policy decisions. The precious metal’s pullback reflected a confluence of factors reshaping investor sentiment across asset classes.

Strong Labor Data Shifts Rate-Cut Expectations

The catalyst for gold’s dips came from stronger-than-expected jobless claims data. U.S. jobless claims unexpectedly fell to their lowest level since November, catching economists off guard and signaling continued resilience in the labor market. This robust employment picture prompted traders to recalibrate their assumptions about Federal Reserve rate-cut timing, particularly regarding the June decision window.

Regional Federal Reserve officials amplified this sentiment on Thursday, with five regional Fed bank presidents signaling openness to pausing interest-rate cuts despite earlier market expectations for multiple cuts. Their comments underscored the Fed’s confidence in labor market strength as a key factor in policy deliberation.

Price Action and Technical Levels

Spot gold declined 0.4 percent to $4,599.74 an ounce, while U.S. gold futures fell 0.4 percent to $4,604.39. The modest percentage decline masked a more significant shift in momentum as the precious metal tested support levels following its recent rally. Simultaneously, the dollar index posted weekly gains, bolstered by signals that U.S. labor market momentum would persist, reducing the urgency for rate reductions.

Geopolitical Easing Reduces Haven Demand

Beyond domestic economic factors, the easing of Iran-U.S. tensions provided additional headwinds for gold’s safe-haven appeal. When geopolitical risks subside, investors tend to rotate away from defensive assets like precious metals toward growth-oriented investments.

Trade Developments Support Risk Appetite

Supporting broader market sentiment, the United States and Taiwan finalized a trade agreement that reduces tariffs on Taiwanese goods from 20 percent to 15 percent. The deal includes $250 billion in U.S. investment commitments across semiconductor production, energy infrastructure, and artificial intelligence development, along with $250 billion in credit guarantees. This agreement signaled reduced trade friction and supported risk appetite among market participants.

Forward Guidance and Market Expectations

The CME FedWatch Tool currently reflects a 62.5 percent probability of a Federal Reserve rate cut occurring in June. However, this probability may face downward pressure following the recent labor data and hawkish Fed commentary.

Market participants are now awaiting additional economic data releases, including U.S. industrial production figures, and further remarks from Federal Reserve officials later in the session for additional insights into the economic trajectory, inflation dynamics, and the central bank’s monetary policy framework.