Dollar Surge Weighs On Gold, Pushing Prices Below $4,600 as Market Recalibrates Fed Outlook

A confluence of factors triggered a pullback in gold prices on Friday, with spot gold sliding 0.4% to settle at $4,599.74 per ounce, marking a retreat from its recent record levels. The decline signals traders reassessing their interest-rate cut expectations amid shifting economic signals.

Labor Market Strength Shifts The Rate-Cut Narrative

Stronger-than-anticipated U.S. jobless claims data became the primary catalyst for the retreat. Weekly jobless claims fell to their lowest point since November, contradicting analyst expectations and signaling continued resilience in the labor market. This unexpected strength prompted a recalibration across financial markets. Five presidents from regional Federal Reserve banks reinforced this sentiment on Thursday by signaling their preference to hold rates steady at the next policy meeting, citing persistent labor market robustness.

The CME FedWatch Tool currently assigns a 62.5% probability to a June rate cut—a figure that reflects diminishing expectations compared to earlier assumptions. The reduction in rate-cut odds directly pressured gold, as the precious metal typically weakens when interest rates remain elevated, reducing the appeal of non-yielding assets.

Dollar Strength Takes Center Stage

The U.S. dollar benefited substantially from these conditions, positioning itself for weekly gains. The inverse relationship between the dollar and gold became evident, with currency strength undercutting demand for bullion priced in dollars. U.S. gold futures declined 0.4% to $4,604.39, mirroring the weakness in spot prices.

De-Escalation And Trade Progress Ease Safe-Haven Appeal

Beyond monetary policy concerns, geopolitical dynamics also affected precious metals. A softening of Iran-U.S. tensions reduced the urgency for safe-haven buying, eroding one pillar of gold’s traditional support.

On the positive trade front, the United States and Taiwan finalized a trade agreement that cuts tariffs on Taiwanese goods from 20% down to 15%. In return, Taiwan committed to $250 billion in U.S. production investments focused on semiconductors, energy, and artificial intelligence, alongside $250 billion in credit guarantees. This agreement signaled easing of trade friction, further diminishing safe-haven demand.

What’s Next For Markets

Traders are closely monitoring upcoming U.S. industrial production figures and scheduled remarks from Federal Reserve officials later Friday for additional insight into the economic and inflation landscape. These data points could provide greater clarity on the trajectory of monetary policy and recalibrate near-term expectations around the $4,600 level for gold pricing.