Breaking: Gold plunges below $3,900; is the YTD low next?

Gold sinks to a four-month low as prices slip below $3,900.
Bullion comes under pressure as US growth remains robust and Core PCE inflation stays high.
Following Wednesday's Fed decision, December rate hike odds drop from 84% to 70%.

Selling pressure pushed Gold below $3,900 on Friday to a fresh year-to-date (YTD) low, despite investors scaling back expectations of policy tightening by the Federal Reserve. At the time of writing, XAU/USD is down almost 3%.

The Greenback has drawn support from this week's robust US economic releases. Growth remained strong, while employment figures pointed to a resilient labour market. Together with a very high Core PCE reading, these developments weigh on bullion despite easing US Treasury yields.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Dollar-denominated Gold is under pressure from the strengthening US Dollar. The US currency's appeal has also increased as an escalation in the Middle East conflict drives Oil prices higher.

However, investors have grown sceptical about a December interest rate increase following Wednesday's Federal Reserve decision and the absence of forward guidance from Chair Kevin Warsh.

According to Prime Terminal pricing, the probability now stands at 70%, compared with 84% after the Fed meeting.

How is Gold trading on the 5-minute chart?

Gold: frequently asked questions

What makes Gold attractive to investors?

Throughout human history, Gold has been important both as a store of value and as a widely used medium of exchange. Beyond its lustre and use in jewellery, the precious metal is now commonly regarded as a safe-haven asset, or an investment considered suitable during periods of turmoil. Gold is also widely regarded as protection against inflation and currency depreciation because it is not dependent on any particular issuer or government.

Which buyers account for the largest Gold holdings?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they often diversify their reserves by purchasing Gold, helping to reinforce perceptions of economic and currency strength. Substantial Gold reserves can bolster confidence in a country's solvency. According to World Gold Council data, central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. No other year since records began has seen a larger purchase. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold has an inverse correlation with them. A depreciating Dollar generally supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. Gold also tends to move in the opposite direction to risk assets. Stock market gains typically put pressure on Gold prices, whereas selling in riskier markets generally benefits the precious metal.

Which factors influence Gold prices?

A broad set of factors can drive Gold prices. Its safe-haven appeal means that geopolitical uncertainty or concerns about a severe recession can trigger a rapid rise. Since Gold offers no yield, lower interest rates generally support it, while a higher cost of borrowing typically puts pressure on the metal. Most price movements, however, hinge on the performance of the US Dollar (USD), as Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices, while a weaker Dollar is likely to lift them.