Gold fears Fed's hawkish stance

Gold has retreated from local highs amid concerns about the Fed's hawkish stance on further rate moves. The futures market does not doubt that policy will be eased following the FOMC meeting on December 9th and 10th. However, to find a compromise within the Committee, Jerome Powell will most likely opt for hawkish rhetoric during the press conference. Precious metals risk losing their key advantage as the dollar strengthens.

Bears are counting on gold prices falling below $4,000 as the cycle of monetary policy easing begins to lose momentum. Derivatives are expecting two rate cuts in 2026, although a week ago, they were expecting three. According to the Bank for International Settlements, the Fed's policy easing was the primary contributor to the 60% increase in gold prices in 2025.

It was initiated by institutional investors who purchased the precious metal as a safe haven, following the US's imposition of the most extensive tariffs since the 1930s on “Liberation Day”. However, the growing momentum then attracted the interest of retail investors, who drove the rally. This resulted in a direct correlation with stock indices. As a result, the Bank for International Settlements concludes that gold has become more closely associated with a risk asset class.

Gold is supported by high demand from ETF enthusiasts, primarily in China and India. According to the World Gold Council, the reserves of specialised exchange-traded funds focused on precious metals reached 3,932 tonnes at the end of November, adding every month except May and increasing reserves by more than 700 tonnes in total in 2025. This is a record in both value and physical terms.

The People's Bank of China continues to build up its precious metal reserves for the 13th consecutive month. In November, they increased by 30K ounces to 74.12M ounces. The cycle of uninterrupted bullion purchases began in November 2024 and is part of the diversification of gold and foreign exchange reserves, as well as de-dollarisation. However, peace talks in Ukraine could slow down or reverse these processes, putting pressure on the gold market.