Dollar’s Unexpected Resilience Limits Gold’s Rally After Rate Cut

On September 17, 2025, spot gold shot above $3,704 per ounce after the Federal Reserve delivered its first rate reduction of the year, lowering the federal funds rate to a 4.00%-4.25% range. This decision, which markets had largely expected, pushed gold to an intraday peak of $3,707 before it pulled back, settling at $3,668.27 by September 18—a marginal 0.05% decrease. The Fed’s move, prompted by softening labor market signals and stubbornly high inflation, led to mixed market responses. Gold’s price action highlighted the intricate relationship among monetary policy, currency shifts, and speculative activity Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ].

The dollar’s surprising rebound after the rate cut became a significant factor in limiting gold’s gains. The U.S. Dollar Index, which had hovered near its lowest levels in years, bounced back, diminishing gold’s attractiveness to overseas investors. This break from the usual negative correlation between a weak dollar and rising gold prices pointed to changing market conditions, shaped by diverging central bank policies, heightened demand for dollar-denominated safe havens due to global tensions, and expectations of ongoing U.S. fiscal stimulus Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ]. At the same time, yields on long-term government bonds climbed, challenging the conventional notion that lower rates benefit gold. The rise in 10-year Treasury yields, driven by ongoing inflation worries and fiscal concerns, made non-interest-bearing gold less appealing Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ].

Despite short-term turbulence, central banks continued to provide solid underlying demand for gold. In the year to date, central bank gold purchases surpassed 800 tonnes, with China, India, and Turkey leading the way. This trend, aimed at diversifying reserves and hedging against geopolitical risks, ran counter to the immediate market pullback, showing the difference between technical trading and fundamental, long-term demand Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ]. The gold-silver ratio widened to between 85 and 90 during August and September 2025, reflecting a shift by investors toward gold’s monetary qualities, especially amid global uncertainty in sectors like manufacturing and technology Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ].

Analysis of market structure pointed to key causes behind gold’s post-Fed retreat. Speculative long positions in gold futures, which had reached historic highs before the rate move, faced forced liquidations as prices fell. Options activity exacerbated the downturn; a concentration of call options at the $3,700 level led to gamma hedging, prompting dealers to sell gold as prices dropped Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ]. Stephen Miran, the Fed’s newest Governor and the lone dissenter at the September meeting, pushed for a larger 50-basis-point reduction, highlighting internal divisions within the FOMC. Though his more dovish view didn’t prevail this time, it suggests possible future shifts in Fed policy as economic indicators change Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ].

Looking forward, gold’s trajectory will continue to be shaped by broader economic and geopolitical trends. The Fed’s updated dot plot pointed to two more 25-basis-point cuts before year-end, matching what markets had priced in but falling short of a more dovish surprise. Deutsche Bank projected that gold could hit $4,000 per ounce by 2026 if inflation remains elevated and government spending stays high. However, Atlanta Fed President Raphael Bostic urged caution on rapid rate cuts, citing persistent inflation and the need for patience. The outlook for the labor market—especially among younger workers and African Americans—remains a major uncertainty, with rising unemployment and longer spells of joblessness posing possible risks.

The September 2025 FOMC meeting was also notable for Stephen Miran’s participation, which sparked debate about the central bank’s independence in light of possible White House influence Gold Price Volatility After Fed Rate Cut: September 2025 Market Analysis [ 1 ]. While ongoing central bank buying and fiscal policy ambiguity support a bullish long-term view, short-term volatility is likely to continue as markets respond to monetary easing, inflation expectations, and global tensions. For investors, this period highlights the importance of combining tactical moves with a long-term perspective on gold as a shield against fiscal and geopolitical uncertainty during a time of monetary change.