Fed Sentiment Causes Gold to Lose Momentum
Gold prices experienced a sharp decline in trading on Friday after hitting a new record high the previous day. Pressure arose as markets were rife with speculation that the Fed could be led by a more hawkish figure, triggering a dollar rebound and prompting massive profit-taking following gold's parabolic rally throughout January.
Spot gold briefly fell more than 6% to $4,940.61/oz, after falling more than 5% earlier in the session. This decline occurred just a day after gold hit an all-time high of $5,594.82/oz on Thursday. Despite the brutal drop, gold is still on track for a more than 20% gain throughout January—its strongest since 1982 and marking its sixth consecutive month of gains.
Fundamentals: 3 Main Triggers for the Fall
First, the headline shock regarding the Fed Chair position. US President Donald Trump said he would announce his pick to replace Jerome Powell on Friday, and market speculation intensified that Kevin Warsh (a former Fed official) would be in the top spot. In a market context, rumors of a "more hawkish new boss" usually translate to tighter liquidity and potentially higher yields, which are counterproductive for gold.
Second, the dollar rebounded from a multi-year low. Reuters noted that the dollar recovered (though still headed for a second weekly decline), helped in part by the Fed's earlier decision to hold interest rates. A stronger dollar makes gold (priced in USD) more expensive for buyers outside the US—demand immediately softened.
Third, the market is overbought and vulnerable to a correction. Tim Waterer (KCM Trade) noted that the combination of expectations of a less dovish Fed chairman, a rebound in the dollar, and gold beginning to "give way" due to overbought conditions contributed to the decline. With January's rapid rally, as soon as a trigger occurred, many speculative positions were immediately exited.
Context: Gold rally too fast, correction becomes "harsh"
Before today's fall, gold had already made a significant run. On Wednesday (January 28th), gold rose about 4% and approached $5,400/oz, with analysts calling the precious metal's rally "taking on a life of its own," but it remained overbought and vulnerable to a correction.
Earlier, gold broke through $5,000 for the first time on Monday and continued its surge on Tuesday to $5,181.84/oz.
Domino effect: silver, platinum, and palladium also tumble
The correction wasn't limited to gold. Silver fell 6.1% to $109.03/oz, after hitting a record high of $121.64 yesterday. Platinum fell 7.1% to $2,443.65, while palladium fell 7.3% to $1,860.
Technical: Levels that become "battlegrounds" after a dump
Technically, today's pattern fits a blow-off top: prices set a record, then are immediately rejected sharply—a sign that the market is running out of short-term buying power. Two areas that usually signal the next direction:
Resistance zone (above): the $5,300–$5,400 area (the area nearly broken yesterday) and the $5,594.82 peak, which serves as a ceiling.
Support zone (below): the psychological $5,000 area (this week's major breakout) and the old record $4,917.65 area (which served as the peak on January 22). If the correction continues, the market typically monitors these former breakout areas to see if buyers return.
What the market is most looking forward to next
The main focus now is the official announcement of the Fed Chair selection and how the market interprets this into the dollar and interest rate expectations. Reuters also reported that the market is still pricing in two interest rate cuts in 2026—so volatility could remain high as the narrative can change quickly.
Source: Newsmaker.id
