Eliza Wong
Gold Prices Surge Then Retreat as Fed Cuts Rates
The long-awaited Federal Reserve rate cut has finally arrived, sending shockwaves through international gold markets. COMEX gold futures hit a historic high of $3,744 per ounce during Wednesday’s session before pulling back to $3,692 by market close. This volatility reflects deep market uncertainty about whether gold has reached its peak or merely paused before another climb.
On September 17, the Federal Reserve announced a 25 basis point cut, lowering rates to 4.00%-4.25%. This marked the Fed’s first rate cut this year, aligning with market expectations. The dot plot projections indicate two additional 25 basis point cuts this year, one more than June’s forecast.
Immediate Market Reaction
The gold market’s whipsaw action demonstrates how traders are processing the Fed’s decision:
- COMEX gold futures reached record highs before retreating
- Trading volume surged 35% above 30-day averages
- Open interest declined suggesting profit-taking activity
Diverging Views: Short-term Profit-taking vs Long-term Bullishness
Market participants appear divided on gold’s trajectory following the Fed decision. Shanghai-based futures analysts note significant disagreement about whether the rate cut represents “good news priced in” or the beginning of a new bullish phase for gold.
Powell’s Hawkish Undertones
Fed Chair Jerome Powell characterized the cut as a “risk management reduction,” emphasizing that rapid rate adjustments weren’t necessary and future decisions would remain data-dependent. According to Xia Yingying (夏莹莹), Head of Precious Metals and New Energy Research at Nanhua Futures, “The gold price’s rapid retreat following its surge was directly tied to Powell’s still-hawkish rhetoric.”
Powell’s comments suggest the Fed won’t pursue rapid or sustained cuts, instead maintaining a gradual, data-dependent approach. Market focus has shifted to Fed easing expectations, personnel changes, independence questions, and precious metals tariff policies.
The ‘Buy Rumor, Sell Fact’ Dynamic
Carsten Menke, Head of Next Generation Research at Julius Baer, observes: “The gold market’s negative reaction to the widely anticipated Fed rate cut resembles a classic ‘buy the rumor, sell the fact’ scenario. As positive news materialized, some short-term capital chose to take profits, causing a technical correction after the price surge.”
However, Menke emphasizes that fundamentals remain unchanged: “Overall, a cooling U.S. economy, declining U.S. rates, and a weaker dollar will continue attracting investors to gold markets.”
International Gold Rally Accelerates in September
Gold has entered an accelerated rally phase since September, gaining 5% month-to-date and over 33% year-to-date. The breach of the $3,700 psychological barrier has triggered renewed bullish sentiment among international institutions.
Major Banks Raise Targets
As gold surpassed key resistance levels, foreign institutions have uniformly turned bullish, consistently raising price targets:
- JPMorgan and UBS recently issued reports predicting gold could break $4,000/oz
- Goldman Sachs analysts have even explored scenarios reaching $5,000/oz
- Central bank buying continues providing structural support
The Third Great Gold Bull Market
Wang Yanqing (王彦青), Chief Precious Metals Analyst at CITIC Construction Futures, believes: “Rate cut expectations causing dollar weakness have become important drivers for dollar-denominated gold price appreciation. Gold is currently in its third major bull market in history.”
Wang notes that central banks have consistently increased gold holdings in recent years to gradually reduce dependence on dollar assets, thereby diversifying risks associated with single reserve currency exposure.
Technical Perspective and Risk Considerations
While the long-term trend appears bullish, technical indicators suggest potential near-term headwinds. According to the latest report from Jin Yafu Gold Research Institute (金雅福黄金研究院), COMEX gold faces short-term pullback pressure after breaking through $3,700/oz.
Technical Analysis Outlook
The technical picture presents a mixed signals environment:
- Gold maintained its oscillating upward trend after breaking through the $3,500 technical resistance level
- The overall structure suggests gold remains within its upward cycle
- RSI readings indicate overbought conditions that typically precede corrections
Risk Factors and Volatility Warning
Tradists caution about increasing short-term volatility risks. Despite the rate cut cycle providing gold with support, fluctuating U.S. economic data, easing geopolitical tensions, and other factors could trigger market adjustments. In the short term, excessive gains have strengthened profit-taking expectations, potentially causing significant price fluctuations.
Liu Tingyu (刘庭宇), Portfolio Manager of Yongying Gold Stock ETF, offers a medium to long-term perspective: “The U.S. economy may struggle to escape stagflation in the short term, strengthening market expectations for 2026 rate cuts. Historically, precious metals have potentially entered their main upward wave phase during the early and middle stages of rate cut cycles.”
Investment Implications and Strategic Recommendations
For ordinary investors, the current historical high gold prices warrant increased attention to portfolio diversification and risk management rather than blind chasing of momentum. Close monitoring of the Fed’s subsequent policy path, dollar trends, and global economic developments will likely prove crucial for timing gold investments.
Practical Guidance for Investors
Seasoned market participants recommend several strategic approaches:
- Maintain disciplined position sizing given current volatility
- Consider dollar-cost averaging rather than lump-sum investments
- Monitor central bank gold purchase patterns for trend confirmation
- Diversify across gold instruments including ETFs, miners, and physical
Navigating Gold Markets in the New Rate Environment
The Fed’s rate cut has undoubtedly altered the landscape for gold investors. While short-term volatility may continue as markets digest the new reality, the fundamental case for gold remains compelling amid economic uncertainty, dollar weakness, and ongoing central bank accumulation.
The critical question of whether gold has peaked may be less important than understanding the new market dynamics created by the Fed’s policy shift. Rather than attempting to time exact tops or bottoms, investors might focus on gold’s role as a portfolio diversifier and store of value during uncertain economic transitions.
As always in financial markets, those who maintain discipline, diversify appropriately, and focus on long-term fundamentals rather than short-term fluctuations tend to achieve the most consistent results. The current gold market presents both unusual opportunities and elevated risks requiring careful navigation and ongoing monitoring of evolving macroeconomic conditions.
