Gold extended its year-end rally as benchmark Treasury real yields declined to their lowest levels since September, fueling renewed appetite for non-interest-bearing assets. The precious metal has gained ground for four straight sessions as market participants position for a potential shift in Federal Reserve communication at next week's policy meeting, according to traders tracking futures markets.
The move reflects growing conviction that inflationary pressures are subsiding more rapidly than officials previously anticipated. Recent data showing softer-than-expected producer price increases and cooling consumer inflation expectations have prompted strategists to recalibrate their 2026 Fed policy forecasts. "The market is increasingly pricing in a more dovish Fed trajectory," said a senior precious metals trader at a major Wall Street bank. "Real yield compression is creating a compelling technical setup for gold."
The dynamic has weighed on the dollar's appeal relative to other major currencies, with the greenback weakening against a basket of its peers for three consecutive days. Currency analysts note that the yen and Swiss franc have particularly benefited from the shift, as carry trades funded by these traditional funding currencies face unwinding pressure. Meanwhile, equity markets have shown mixed reactions, with rate-sensitive sectors rallying while financials lag amid margin compression concerns.
Looking ahead, traders are focused on next week's Fed dot plot update and Chairman Jerome Powell's post-meeting remarks for clarity on the policy path. Options markets indicate elevated hedging demand around the event, suggesting expectations for heightened volatility. "The key question isn't whether they pause, but how they frame the 2026 outlook," noted a chief market strategist at a European asset manager. "Any hint of accelerated balance sheet reduction or a lower terminal rate could send gold testing technical resistance levels."
Disclaimer: This analysis is AI-generated for educational purposes. Traders should verify all information and conduct their own research before making trading decisions.