Gold Surges to 2-Week High as Fed Rate Cut Bets Intensify, Dollar Takes a Hit

Precious metals staged a powerful rally on Friday, with gold climbing to a two-week high and silver reaching an all-time record, as market participants recalibrate expectations around Federal Reserve policy. The surge in bullion prices reflects a dramatic shift in rate-cut odds, which have now jumped to an 83% probability for a December 9-10 FOMC cut—a stunning reversal from just 30% a week prior.

The Dollar Weakens Amid Policy Uncertainty

The dollar index (DXY) retreated to its lowest level in 1.5 weeks, posting a -0.08% decline as investors reassess the outlook for Fed monetary policy. Early gains were quickly erased as market participants digested the surging odds of a 25 basis point rate reduction at the upcoming FOMC meeting. Beyond rate expectations, the currency faced additional headwinds from a Bloomberg report indicating Kevin Hassett as a leading candidate to replace Jerome Powell as Fed Chair. Hassett’s dovish profile and support for President Trump’s hands-on approach to rate setting have sparked concerns about Federal Reserve independence, creating additional selling pressure on the greenback. Strength in equity markets on Friday also contributed to reduced dollar demand, as investors rotated toward risk assets.

Gold and Silver Surge on Safe-Haven Demand

December COMEX gold futures climbed +53.10 points (+1.27%) to close Friday at a fresh two-week high, while December silver futures surged +0.639 (+1.27%), with spot prices reaching $56.46 per troy ounce—a new all-time record. The rally underscores shifting investor sentiment as expectations of looser monetary policy drive demand for precious metals as stores of value. The record-high silver prices reflect particularly acute supply concerns, with Shanghai Futures Exchange-linked warehouse inventories hitting a decade low, suggesting tightness in physical supplies that could support further price appreciation.

Central bank demand remains a critical support factor, with China’s PBOC adding to its gold reserves for a twelfth consecutive month in October, bringing total holdings to 74.09 million troy ounces. Global central bank purchases reached 220 million tonnes in Q3, up 28% from the prior quarter, signaling sustained institutional appetite. Broader safe-haven flows have also been bolstered by geopolitical risks and U.S. tariff uncertainties, which continue to drive flows into bullion.

Mixed Signals From Currency Markets

EUR/USD edged up +0.05% as the euro stabilized following early selling pressure. European inflation data painted a nuanced picture: Eurozone one-year inflation expectations unexpectedly rose to 2.8% in October from 2.7%, signaling potential hawkish tilts for the European Central Bank. German inflation accelerated to +2.6% year-over-year in November—the fastest pace in nine months—outpacing forecasts of +2.4%. However, retail sales in Germany contracted unexpectedly, offering a bearish counterweight. ECB rate-cut odds remain muted at just 2%, reflecting the central bank’s more defensive posture.

USD/JPY slipped -0.12% as the yen drew support from robust Japanese economic data. Japanese industrial production surged +1.4% month-over-month versus expectations of a -0.6% decline, while retail sales jumped +1.6%—the largest monthly gain in five years. Tokyo CPI held steady at +2.7% year-over-year, aligning with forecasts and reinforcing a hawkish outlook for the Bank of Japan. Markets are pricing in a 59% probability of a December 19 BOJ rate hike. However, labor market softness—with the unemployment rate holding flat at 2.6% instead of the anticipated decline to 2.5%—provided some offset to yen strength.

Technical and Structural Headwinds

Despite the rally, precious metals faced headwinds from a technical outage at the Chicago Mercantile Exchange that disrupted trading activity and may have capped gains. Long liquidation pressures that emerged after mid-October record highs continued to weigh on sentiment, with gold and silver ETF holdings recently declining from their October 21 three-year peaks. Improving prospects for Ukraine peace negotiations have also curbed traditional safe-haven demand, though broader macro uncertainties appear to be overwhelming this consideration.