Gold attempts to build a foothold above 4200

Written by Samer Hasn, Senior Market Analyst at XS.com

Gold is rising by roughly 0.5 percent this morning as it tries to consolidate above 4200 dollars per ounce. The move reflects renewed confidence that the Federal Reserve is preparing multiple rate cuts and a continued lag in the impact of weaker US data from earlier this quarter. For now, buyers are leaning on policy expectations rather than growth fundamentals.

The rally, however, looks increasingly vulnerable. A faster recovery in the US economy following tariff reversals or a resolution of the government shutdown risk could alter the macro landscape quickly. Equity markets are already signalling this possibility, with the Russell 2000 pushing toward record territory and risk appetite extending into the most speculative pockets of the market.

Pressure is also visible in fixed income. The Merrill Lynch Option Volatility Estimate index is approaching its 2021 lows, indicating unusually calm bond conditions despite rising uncertainty elsewhere. When bond volatility compresses while stocks rally broadly, the case for gold as a defensive hedge becomes harder to justify.

The only clear catalyst left for gold at this stage remains expectations around monetary policy. According to the CME FedWatch Tool, markets still assign meaningful odds to a 25-basis-point cut in December followed by another in January. These expectations provide a floor for gold but do not necessarily ensure further upside unless broader macro conditions align.

According to The Wall Street Journal, investor sentiment across equities has improved for reasons extending beyond the artificial-intelligence boom. Analysts cited healthier long-term growth expectations, anchored inflation forecasts, and still-bearable valuations supported by falling Treasury yields. That backdrop has pushed the S&P 500 and the Russell 2000 near record highs as capital rotates into both mega-caps and smaller companies. This shift matters for gold because it reflects a market increasingly comfortable with risk, reducing the urgency for defensive allocations and challenging gold’s current attempt to climb.

In this environment, gold’s advance toward 4200 looks less like a breakout and more like a stress test of conviction. The metal needs either a clear deterioration in economic momentum or a stronger policy signal to extend higher from here. Without that, the balance of probabilities suggests a market leaning more on hope than fundamentals as gold attempts to hold its recent gains.