Gold Surges to 2-Week Peak as Markets Price in Fed Rate Cut Odds for December Meeting

Precious metals staged a powerful rally on Friday, with December COMEX gold climbing +53.10 points (+1.27%) to reach its highest level in two weeks, while December COMEX silver jumped +0.639 (+1.27%) and hit an all-time record high of $56.46 per troy ounce. The momentum reflects a fundamental shift in market sentiment surrounding the upcoming Fed meeting in November-December.

Rate Cut Expectations Reshape Market Dynamics

Swap markets are now pricing an 83% probability of a 25 basis point rate cut at the December 9-10 FOMC meeting, a dramatic jump from just 30% probability the previous week. This shift has created a challenging environment for the dollar index (DXY), which fell to a 1.5-week low and finished the session down 0.08%. The strengthening conviction around Fed action has redirected capital flows toward alternative assets, particularly precious metals that benefit from lower interest rate environments.

Currency Markets React to Fed Guidance and Leadership Uncertainty

EUR/USD edged higher by 0.05% as the euro recovered from early losses, supported by hawkish economic signals from the eurozone. Eurozone 1-year inflation expectations unexpectedly accelerated to 2.8% from 2.7%, overshooting forecasts for a decline to 2.6%. Meanwhile, German November CPI rose 2.6% year-over-year—stronger than the 2.4% forecast and marking the largest nine-month increase. German retail sales, however, disappointed with a 0.3% monthly decline against expectations of a 0.2% increase.

The euro also benefited from broader dollar weakness tied to political developments. Bloomberg reported that Kevin Hassett has emerged as the leading candidate to replace Jerome Powell as Fed Chair. Market participants view Hassett as a dovish, pro-liquidity policy advocate, raising concerns about Fed independence if his nomination proceeds, particularly given his alignment with rate-cutting preferences that extend beyond current economic conditions.

USD/JPY retreated 0.12% as the yen strengthened on mixed Japanese economic signals. October industrial production accelerated 1.4% month-over-month (against forecasts of a 0.6% decline), and retail sales surged 1.6% monthly—the largest gain in five years. November Tokyo CPI remained elevated at 2.7% year-over-year, signaling persistent inflation pressures that support BOJ hawkishness. However, labor market softness limited yen gains, with the October jobless rate holding steady at 2.6% (versus expectations for improvement to 2.5%) and the job-to-applicant ratio unexpectedly easing to 1.18 from 1.20. Markets now discount a 59% probability of a BOJ rate hike at the December 19 policy meeting.

Precious Metals Capture Safe-Haven and Yield-Sensitive Demand

The gold and silver rally was driven by multiple converging factors. The primary catalyst remains the 83% probability of a fed rate cut at the coming FOMC meeting, which reduces the opportunity cost of holding non-yielding precious metals. Beyond rate expectations, geopolitical risks, uncertainty surrounding US tariff policy, and safe-haven positioning continue to support demand.

Central bank accumulation remains a structural tailwind. China’s PBOC increased its gold reserves to 74.09 million troy ounces in October—extending a twelve-month streak of consecutive monthly purchases. Globally, central banks purchased 220 metric tons of gold in Q3, representing a 28% increase from Q2 activity. Additionally, concerning tightness in Chinese silver supplies has emerged as a bullish factor, with Shanghai Futures Exchange-linked warehouse inventories falling to decade lows.

Friday’s trading was technically constrained by a Chicago Mercantile Exchange systems outage that disrupted gold and silver futures and options activity. Despite this, both metals achieved significant gains. Recent profit-taking pressures—following mid-October record highs—have moderated somewhat, with holdings in gold and silver ETFs declining from 3-year peaks established on October 21.

The stock market’s rally on Friday presented a counterbalance, reducing safe-haven demand for precious metals, while improving prospects for Ukrainian conflict resolution also curbed defensive positioning. Nevertheless, the combination of rate cut expectations, central bank demand, supply constraints, and geopolitical risks appears likely to support further upside for precious metals into the December fed meeting.