Gold back below $4,000 as Powell warns December cut "far from" certain

Gold (GC=F)

Gold prices dropped on Thursday morning, with market sentiment weighing heavily on the precious metal despite an anticipated rate cut by the Federal Reserve as chair Jerome Powell indicated a December rate cut is "far from" a forgone conclusion.

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Gold futures (GC=F) slipped 0.8% to $3,970.70 per ounce, while spot gold lost 1% to $3,966.22 an ounce, at the time of writing.

"A lot has gone against gold (GC=F) this week. The looming US-China trade deal diminishes trade and geopolitics as a tailwind," said Capital.com analyst Kyle Rodda.

"The hawkish cut from the Federal Reserve and the drop in the odds for another rate cut in December are also negative for gold (GC=F). I think gold could keep pulling back given this dynamic. Although, in the long run the trend is to the upside for gold."

On Wednesday, the US Federal Reserve cut interest rates by a quarter of a percentage point, marking the second reduction this year. This move lowered the benchmark overnight rate to a target range of 3.75%–4.00%.

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Speaking at a press conference, Powell offered a note of caution about what lies ahead. "In the committee's discussions at this meeting, there were strongly differing views about how to proceed in December," Powell said, adding, "a further reduction in the policy rate at the December meeting is not a foregone conclusion. Far from it, policy is not on a preset course."

Non-yielding gold (GC=F) thrives in low-interest-rate environments and during periods of economic uncertainty.

"Gold (GC=F) had a logical reaction to Powell trying to walk back expectations for a December cut. We're already seeing Fed funds futures trimming expectations, that would be dollar positive and gold negative," said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Oil (BZ=F, CL=F)

Oil prices were in the red in early European trading, as investors digested the new trade deal between US president Donald Trump and Chinese president Xi Jinping.

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Brent crude (BZ=F) futures dipped 0.7% to $64.44 per barrel at the time of writing, while West Texas Intermediate futures lost 0.8% to $60.03 a barrel.

Following his meeting with Xi, Trump announced a deal aimed at reducing some of the trade tensions between the two nations. The U.S. president stated that tariffs on China would be lowered in exchange for Beijing agreeing to resume U.S. soybean purchases, maintaining rare earth exports, and intensifying efforts to combat the illegal fentanyl trade.

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Despite the positive tone from Trump, who described the discussions with Xi as "fantastic" and highlighted their "great relationship," oil (BZ=F, CL=F) prices showed signs of caution. The early drops suggest that some investors remain skeptical that the new agreement signals the end of the ongoing trade war.

Read more: Stocks slip as Trump lowers China tariffs and settles rare earths roadblock with Xi Jinping

Derren Nathan, head of equity research at Hargreaves Lansdown, said: "Yesterday’s rally in oil (BZ=F, CL=F) prices proved to be short-lived. Brent crude (BZ=F) prices have dropped marginally to around $64.5 per barrel. The absence of a mention of a trade agreement on energy products after the summit between China and the US is playing on traders’ minds."

"Meanwhile, a tightening of sanctions by the US on Russian oil exports hasn’t alleviated concerns of a supply glut."

Crude prices continue to face downward pressure, with October set to mark a third consecutive month of losses. Concerns over a global supply glut and weakening demand have weighed on long positions in recent months, overshadowing any potential optimism surrounding the trade deal.

Pound (GBPUSD=X, GBPEUR=X)

The pound was flat against its major peers on Thursday morning as concerns about the UK’s fiscal situation and BoE rate hike bets cap gains for spot prices.

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As of 9:34:41 AM GMT. Market Open. GBPUSD=XGBPEUR=X

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The pound (GBPUSD=X, GBPEUR=X) was trading at 1.3196 against the greenback. The US dollar index (DX-Y.NYB), which tracks the greenback against a basket of six major currencies, was flat at 99.18.

Investors remain concerns that a prolonged US government shutdown would affect the economic performance, which, in turn, is seen undermining the dollar.

Concerns about the UK's fiscal health could limit any significant gains for the GBP/USD pair (GBPUSD=X), as traders weigh the potential implications of the latest economic reports.

According to reports, the UK's Office for Budget Responsibility (OBR) is expected to revise its productivity forecasts downward by approximately 0.3%, which could add over £20bn to the country's fiscal gap.

This comes ahead of chancellor Rachel Reeves' autumn budget, due on November 26. As a result, traders are hesitant to make aggressive bullish bets on the pound, particularly amid growing expectations of further rate cuts by the Bank of England (BoE).

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Market participants are currently pricing in a roughly 68% chance that the BoE will reduce interest rates by 25 basis points in December. Softer inflation data and ongoing fiscal pressures appear to be providing the central bank with more room to ease policy further.

This environment suggests that traders may adopt a more cautious stance, waiting for stronger signals of upward momentum before committing to the GBP/USD pair (GBPUSD=X).

In other currency news, the pound was muted versus the euro (GBPEUR=X), at €1.1359.

In equities, the FTSE 100 (^FTSE) was down 0.4% on Thursday morning, trading at 9,720 points. For more details on market movements, check our live coverage here.

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