Why Did Gold’s Rally Stall After the Fed’s Rate Cut?

Gold surged to a record $3,707 per ounce before the Federal Reserve’s September 17, 2025, rate cut, riding expectations that lower rates would boost non-yielding assets. Yet, by September 18, spot gold slid 0.43% to $3,644.26, and gold futures dropped 1.09% to $3,677.40, defying the notion that easing sparks sustained rallies. This sharp retreat suggests a provocative reality: cautious Fed guidance and a resilient dollar can eclipse policy-driven tailwinds, exposing gold’s vulnerability to short-term sentiment despite robust fundamentals. What’s driving this unexpected pause, and what does it signal for gold’s path forward?

Fed’s Guidance Sets the Tone

Chair Jerome Powell framed the 25 basis point cut as a “risk-management” measure to address labor market softness and persistent inflation, with the dot plot forecasting two additional quarter-point cuts by year-end, targeting a 3.5%-3.75% federal funds rate. This measured outlook, emphasizing a data-dependent approach without bold commitments to further easing, tempered market enthusiasm. Powell’s acknowledgment of “two-sided risks” and the lack of aggressive dovishness prompted a swift reassessment, as investors questioned whether the Fed’s cautious path would sustain gold’s momentum. This nuanced signaling set the stage for profit-taking after gold’s 38.84% year-to-date surge, highlighting the market’s sensitivity to policy clarity.

Dollar Strength and Profit-Taking Weigh In

The Fed’s restrained stance coincided with a 0.3% rise in the dollar index to 97.20, making gold pricier for global buyers and triggering a “buy the rumor, sell the fact” reaction. Mixed jobs data—fewer claims but broader labor market weakening—further fueled caution, undercutting the rate cut’s appeal. Some might argue that lower rates should still favor gold by reducing the opportunity cost of holding non-yielding assets, as seen in 2020’s easing cycle. However, the dollar’s resilience and the Fed’s tempered guidance shifted focus to short-term volatility, with spot gold dipping to a day’s low of $3,627.96 before stabilizing. This dynamic underscores gold’s exposure to currency fluctuations, despite its strong 41.80% annual gain.

Robust Fundamentals Anchor the Uptrend

Gold’s fundamentals remain a powerful counterweight. Central banks, particularly in China, India, and Turkey, drive demand with 650-700 tonnes of annual purchases for reserve diversification, bolstering prices amid de-dollarization trends. Mining supply, constrained by rising costs and environmental regulations, limits new output, tightening the market. Retail interest holds firm, with physical gold premiums rising during dips, while ETF holdings like the SPDR Gold Trust (down 0.44% to 975.66 tonnes) reflect tactical adjustments, not a demand collapse. These factors underpin gold’s resilience, even as recent price drops highlight policy-driven volatility.

What’s Next for Gold?

Gold is likely to consolidate above $3,550 support, with potential to test $3,800 by year-end if easing gains momentum. However, the Fed’s cautious guidance and dollar movements could sustain volatility, as seen in the recent 0.43% spot and 1.09% futures declines. Investors and traders should proceed with reasonable caution, staying informed on monetary policy shifts and global economic cues to navigate this balance.

Gold’s post-cut stumble reveals a deeper truth: in an era of calibrated policy moves, its trajectory hinges less on rate reductions and more on the conviction behind them. For now, gold’s allure persists, but its next surge awaits a stronger catalyst to reignite its climb.