Gold trading reminder: US dollar "collapses", gold price hits 3700, a new high, facing the test of the Fed's decision
2025-09-17 06:53:54
The gold market is experiencing an unprecedented frenzy. On Tuesday (September 16), spot gold prices broke through the $3,700 per ounce mark for the first time, reaching an all-time high of $3,702.93 during trading before closing at $3,689.60. This milestone rise was no accident; it was a direct reaction to expectations of a Federal Reserve rate cut, a sharp drop in the US dollar index, and a confluence of factors, including geopolitical risks, a central bank gold-buying spree, and a weakening dollar. Spot gold prices fluctuated at high levels in early Asian trading on Wednesday, currently trading at $3,691.23 per ounce.
Strong market expectations for a Federal Reserve rate cut are the core driver of the surge in gold prices. According to data from the CME Group's FedWatch tool, traders are almost fully pricing in a 25 basis point rate cut at the Fed's September 17th meeting, with a small number of investors even betting on a 50 basis point cut (with a probability of approximately 4%). US President Trump publicly pressured Fed Chairman Powell on social media, demanding a "larger" rate cut, further reinforcing the market's dovish outlook.
In a low-interest rate environment, the appeal of gold as a non-yielding asset has significantly increased. Once a rate cut is implemented, the decline in real interest rates will reduce the opportunity cost of holding gold, thereby stimulating continued capital inflows into the gold market. OANDA analyst Zain Vawda noted, "While safe-haven demand and central bank gold purchases have provided support, the primary driver of this round of gold price increases remains the market's pricing in of the Federal Reserve's aggressive rate cuts."
The continued weakening of the US dollar index provided additional support for gold prices. On Tuesday, the US dollar index fell 0.74% to 96.54, its lowest level since July 1st. Meanwhile, the dollar fell 0.9% against the euro to its lowest level since September 2021. A weaker dollar makes dollar-denominated gold cheaper for holders of other currencies, boosting global buying demand. US retail sales data, released on Tuesday, rose 0.6% month-over-month in August, exceeding expectations for a 0.2% increase, suggesting continued consumer spending momentum. However, this did little to provide respite for the dollar or Treasury yields.
"Gold prices have surged on the back of a sharp depreciation of the dollar, but market sentiment has turned cautious ahead of the Fed's decision, and some profit-taking may temporarily curb gains," said Tai Wong, an independent metals trader.
The weakness of the US dollar not only reflects the market's expectations of the Federal Reserve's interest rate cuts, but also reveals investors' concerns about the outlook for the US economy. Although August retail data exceeded expectations, the weak labor market and inflationary pressures caused by tariffs are still undermining the credit of the US dollar.
Gold's traditional role as a safe-haven asset has been revitalized in the current complex economic environment. Uncertainty about global economic growth, geopolitical conflicts, and diverging policies among major economies have prompted investors to increase their allocations to gold. So far in 2025, the gold price has risen by 41%, surpassing $3,700 just one week after breaking through $3,600 on September 8th.
The continued gold purchases by central banks around the world also provide solid support for the market. As long-term strategic buyers, central banks' gold purchase decisions are unaffected by short-term price fluctuations, instead forming a "positive feedback loop" during gold price increases. This structural buying has weakened gold's selling pressure, making its price resilient far beyond historical levels.
Gold's rise isn't an isolated event, but rather the result of a complex mix of global monetary policy and exchange rate fluctuations. In addition to the Federal Reserve, the Bank of England and the Bank of Japan will also announce interest rate decisions this week. Market expectations are that the Bank of England will remain on hold, while the Bank of Japan will maintain its interest rate at 0.5%. The divergence in monetary policies among major economies is likely to further exacerbate exchange rate fluctuations, thereby amplifying the financial value of gold.
The volatility of U.S. Treasury yields also reflects mixed market sentiment. Despite strong retail sales data, the 10-year Treasury yield fell slightly to 4.028%, near a five-month low, suggesting that investors are more focused on the risk of a future economic slowdown than short-term data. The 10-year Treasury Inflation Expectations Index (TIPS) break-even yield remained stable at 2.37%, suggesting that the market believes the Federal Reserve has room to respond to economic downturns with interest rate cuts.
A successful breakout above $3,700 would signal the start of a new price revaluation cycle for gold. In the short term, the Federal Reserve's policy decision will be a key indicator. If the rate cut or future guidance is more dovish than expected, gold prices could surge further. A cautious stance could lead to a technical correction.
However, in the medium and long term, the underlying logic behind gold remains unchanged: easing global monetary policy, a weakening US dollar credit system, the normalization of geopolitical risks, and the institutionalization of central bank gold purchases all provide a solid foundation for a bull market in gold. While investors should be wary of short-term volatility risks, they should also prioritize gold's irreplaceable role as a strategic asset in wealth allocation.
The Federal Reserve will announce its interest rate decision at 2:00 AM Beijing time on Thursday, and the Fed Chairman will attend a press conference at 2:30 AM Beijing time, which investors should pay close attention to. Before the decision, investors should also monitor US real estate market data and news related to the China-US trade negotiations. Trump's upcoming state visit to the UK is also worth noting.
(Spot gold daily chart, source: Yihuitong)
At 06:50 Beijing time, spot gold was trading at $3691.31 per ounce.
1. Expectations of a Fed rate cut: the core engine of gold's rise
Strong market expectations for a Federal Reserve rate cut are the core driver of the surge in gold prices. According to data from the CME Group's FedWatch tool, traders are almost fully pricing in a 25 basis point rate cut at the Fed's September 17th meeting, with a small number of investors even betting on a 50 basis point cut (with a probability of approximately 4%). US President Trump publicly pressured Fed Chairman Powell on social media, demanding a "larger" rate cut, further reinforcing the market's dovish outlook.
In a low-interest rate environment, the appeal of gold as a non-yielding asset has significantly increased. Once a rate cut is implemented, the decline in real interest rates will reduce the opportunity cost of holding gold, thereby stimulating continued capital inflows into the gold market. OANDA analyst Zain Vawda noted, "While safe-haven demand and central bank gold purchases have provided support, the primary driver of this round of gold price increases remains the market's pricing in of the Federal Reserve's aggressive rate cuts."
2. The US dollar hit a new low in more than two months: a "reverse accelerator" for gold
The continued weakening of the US dollar index provided additional support for gold prices. On Tuesday, the US dollar index fell 0.74% to 96.54, its lowest level since July 1st. Meanwhile, the dollar fell 0.9% against the euro to its lowest level since September 2021. A weaker dollar makes dollar-denominated gold cheaper for holders of other currencies, boosting global buying demand. US retail sales data, released on Tuesday, rose 0.6% month-over-month in August, exceeding expectations for a 0.2% increase, suggesting continued consumer spending momentum. However, this did little to provide respite for the dollar or Treasury yields.
"Gold prices have surged on the back of a sharp depreciation of the dollar, but market sentiment has turned cautious ahead of the Fed's decision, and some profit-taking may temporarily curb gains," said Tai Wong, an independent metals trader.
The weakness of the US dollar not only reflects the market's expectations of the Federal Reserve's interest rate cuts, but also reveals investors' concerns about the outlook for the US economy. Although August retail data exceeded expectations, the weak labor market and inflationary pressures caused by tariffs are still undermining the credit of the US dollar.
3. Safe-haven demand and central bank gold purchases: structural support
Gold's traditional role as a safe-haven asset has been revitalized in the current complex economic environment. Uncertainty about global economic growth, geopolitical conflicts, and diverging policies among major economies have prompted investors to increase their allocations to gold. So far in 2025, the gold price has risen by 41%, surpassing $3,700 just one week after breaking through $3,600 on September 8th.
The continued gold purchases by central banks around the world also provide solid support for the market. As long-term strategic buyers, central banks' gold purchase decisions are unaffected by short-term price fluctuations, instead forming a "positive feedback loop" during gold price increases. This structural buying has weakened gold's selling pressure, making its price resilient far beyond historical levels.
4. Global Market Linkage: The Game Between Interest Rates and Exchange Rates
Gold's rise isn't an isolated event, but rather the result of a complex mix of global monetary policy and exchange rate fluctuations. In addition to the Federal Reserve, the Bank of England and the Bank of Japan will also announce interest rate decisions this week. Market expectations are that the Bank of England will remain on hold, while the Bank of Japan will maintain its interest rate at 0.5%. The divergence in monetary policies among major economies is likely to further exacerbate exchange rate fluctuations, thereby amplifying the financial value of gold.
The volatility of U.S. Treasury yields also reflects mixed market sentiment. Despite strong retail sales data, the 10-year Treasury yield fell slightly to 4.028%, near a five-month low, suggesting that investors are more focused on the risk of a future economic slowdown than short-term data. The 10-year Treasury Inflation Expectations Index (TIPS) break-even yield remained stable at 2.37%, suggesting that the market believes the Federal Reserve has room to respond to economic downturns with interest rate cuts.
Summary: Is gold’s super cycle sustainable?
A successful breakout above $3,700 would signal the start of a new price revaluation cycle for gold. In the short term, the Federal Reserve's policy decision will be a key indicator. If the rate cut or future guidance is more dovish than expected, gold prices could surge further. A cautious stance could lead to a technical correction.
However, in the medium and long term, the underlying logic behind gold remains unchanged: easing global monetary policy, a weakening US dollar credit system, the normalization of geopolitical risks, and the institutionalization of central bank gold purchases all provide a solid foundation for a bull market in gold. While investors should be wary of short-term volatility risks, they should also prioritize gold's irreplaceable role as a strategic asset in wealth allocation.
The Federal Reserve will announce its interest rate decision at 2:00 AM Beijing time on Thursday, and the Fed Chairman will attend a press conference at 2:30 AM Beijing time, which investors should pay close attention to. Before the decision, investors should also monitor US real estate market data and news related to the China-US trade negotiations. Trump's upcoming state visit to the UK is also worth noting.
(Spot gold daily chart, source: Yihuitong)
At 06:50 Beijing time, spot gold was trading at $3691.31 per ounce.
- Risk Warning and Disclaimer
- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
