Gold’s correction highlights the influence of the Dollar remains as strong as ever

The recent hesitance of the Federal Reserve in the face of future rate cuts appears to have a profound impact on gold futures, highlighting the precious metal’s role as a safe haven against dollar devaluation. 

Despite rallying more than 50% during the first three quarters of 2025, gold has since struggled to build on its momentum, suffering a correction that saw the commodity slip back below $4,000 following an all-time high of $4,381.58 recorded earlier in October. 

While gold appears to have entered a period of consolidation, supported by a wider pullback in global equities and softening risk appetite among investors, the Federal Reserve’s reversion to a hawkish stance on interest rates is causing optimism for further rallies to evaporate. 

The trend reversal that can be seen in USD/XAU loosely correlates with the same trends in currency pairs such as USD/EUR and USD/GBP, showing that the Fed’s shifting stance on rates has had a profound effect on both the greenback and the de-dollarization movements that have seen interest in gold grow in recent years. 

Dollar uncertainty takes hold

The Federal Reserve’s stance on monetary policy is becoming increasingly clouded due to a cocktail of different concerns stemming from inflation and job market data. Chicago Federal Reserve president Austan Goolsbee claimed that he’s undecided about whether to cut interest rates again in December, suggesting that the threshold for cutting is higher because of mounting economic concerns. 

While the Fed has voted to cut rates to a new range of 3.75% to 4%, USD/XAU’s trend reversal suggests that investors are now unsure that there’s more to come in the foreseeable future. With Goolsbee concerned about the impact of “front-loading rate cuts,” gold’s price rally could be interrupted. 

The softening dollar and cooling yields have been a key catalyst for growth during the bullion bull run, but as sell-offs gained momentum around the $4,000 mark, investors are entering a new phase of caution as reports like the ADP jobs and ISM PMI numbers are expected to carry a strong short-term impact on USD/XAU. 

With the Trump administration breaking new ground in the pursuit of a trade deal with China, the economic stresses that have directly benefited the performance of gold are subsiding. With the prospect of the Fed keeping interest rates higher in an effect that could improve the attraction of USD to foreign investors, Swissquote analysts have urged caution among investors looking at gold’s recent consolidation near October’s highs.  

Will Gold recover? 

Gold’s long-term performance has seen the commodity more than double in value over the past five years, and the precious metal remains in good standing to continue appreciating over time, despite the shock of the Fed’s hawkish reversion. 

Fawad Razaqzada, market analyst for Global Macro at FOREX.com, has also claimed that calling a top for gold following its recent dip feels premature when previous bets against the rally have failed to pay off over the past year. 

With gold currently trading at its initial support of $3,970, market reactions to new US jobs data metrics will play a key role in the future direction the commodity takes in response to the perceived strength of the dollar. 

However, gold’s resurgence has been heavily influenced by more factors than dollar depreciation and has formed a core component of a more widespread de-dollarization movement. 

The appetite for gold is strengthening, and central bank buying has become increasingly geographically diverse, with the World Gold Council suggesting that official sector demand now accounts for nearly one-quarter of total gold inflows, reaching its highest share since the 1960s. 

Investor interest in gold ETFs also reached a fever pitch in the first half of this year, attracting around $30 billion in inflows as factors like trade uncertainty and geopolitical conflict disrupted the outlook for more risk-averse forex traders. 

Can Gold recapture $4,000?

In 2025, it appears that a resumption of gold’s market rally will be largely down to the Federal Reserve and US jobs market data. 

If indications that the Fed is unwilling to cut rates further in Q4 2025 prove to be correct, it will drive a return of dollar resilience that can attract enough foreign interest to slow gold’s growth. 

Looking further afield, the soaring value of gold is indicative of wider de-dollarization trends that appear set to continue. With the Trump administration strongly favoring the trade benefits of a weaker dollar, indications suggest that the precious metal stands to be a prime beneficiary. 

While multiple factors helped to contribute to gold’s stellar 2025, the Federal Reserve remains a highly influential player in determining the trajectory of the commodity. If these signs of a hawkish reversion are to play out, a resumption of the bullion bull run may take longer to emerge. 

Recapturing $4,000 is likely to happen, but we may have to wait until next year for the gold rush to return.