Fed Hawkishness Could Put a Hard Gold Cap on Near-Term Rally as XAU/USD Eyes $4,100

Federal Reserve officials’ restrictive stance poses a significant barrier to gold appreciation. Markets face mounting uncertainty as delayed economic reports flood in following the 43-day government shutdown, with XAU/USD struggling to maintain momentum above the $4,100 level during early Asian trading on Monday.

Fed Rhetoric Emerges as Key Headwind for Gold Upside

The prospect of gold cap gains looms large as four Fed policymakers prepare to address markets. John Williams, Philip Jefferson, Neel Kashkari, and Christopher Waller are scheduled to speak, with their comments likely to reinforce the central bank’s restrictive monetary policy stance. Kansas City Fed President Jeffery Schmid’s recent remarks underscored this approach, stating that policy should “lean against demand growth” and that current settings are “modestly restrictive” but warranted—language that effectively signals limited room for near-term rate reductions.

This hawkish positioning has already impacted market expectations for December. The CME FedWatch Tool reveals a significant shift: odds of a 25 basis point rate cut have slipped to 54%, marking a sharp reversal from last week’s 62.9% probability. For a non-yielding asset like gold, higher interest rates pose a structural headwind.

Economic Data Deluge and the Dollar Factor

The reopening of the federal government eliminates the immediate safe-haven bid that supported precious metals during the shutdown period. However, emerging economic data—delayed due to the 43-day closure—presents a complex picture. Analysts anticipate these figures will reveal labor market softness and broader economic deceleration, a scenario that could paradoxically benefit gold by weakening the US Dollar.

Weakness in the Greenback remains the most plausible catalyst for gold price recovery. With XAU/USD resuming its upward trajectory near $4,105, the currency’s softer tone provides temporary support. Yet this dynamic operates in direct tension with Fed communications.

The Balancing Act: Which Force Prevails?

Gold faces crosscurrents. While delayed economic data may eventually depress the Dollar and lift precious metals, near-term headwinds from hawkish Fed guidance appear dominant. The gold cap on upside potential reflects market participants’ growing conviction that rate cuts remain distant, making yield-bearing alternatives increasingly attractive relative to the non-yielding yellow metal.