Gold bounces back above $4,100 as dollar softens, but hawkish Fed outlook threatens rally

XAU/USD climbs to $4,105 in early Monday trading

Gold is staging a recovery, bouncing back to around $4,105 during Monday’s opening hours. This move breaks a two-session decline and reflects renewed investor interest in the precious metal as the US Dollar loses ground. The upturn comes as markets prepare for a barrage of economic data releases that have been pending since the recent government shutdown.

Government reopening shifts market dynamics

The 43-day federal government shutdown that just ended has left traders scrambling to reassess the economic landscape. With federal employees now back at their desks, delayed economic indicators are expected to flood the market this week. Many in the market are anticipating these reports will reveal softer employment figures and signs of economic deceleration—developments that could pressure the Greenback and provide tailwinds for the non-yielding commodity priced in USD terms.

Fedspeak on the agenda: hawks vs doves in focus

The real driver of gold’s direction may come from this week’s Federal Reserve commentary. Multiple Fed officials, including John Williams, Philip Jefferson, Neel Kashkari, and Christopher Waller, are scheduled to speak. Recent hawkish signals from policymakers—particularly Kansas City Fed President Jeffery Schmid’s Friday comments that current policy is “modestly restrictive” and should “lean against demand growth”—are putting pressure on traders betting on dovish policy shifts.

Rate cut odds shift downward

The hawkish tone is already reshaping market expectations for December. According to CME FedWatch data, the probability of a 25 basis point rate cut at the December meeting has fallen to 54%, down from 62.9% just days earlier. This dovish-to-hawkish reversal in Fed signals is the key headwind limiting gold’s upside potential, despite the yellow metal’s traditional strength during economic uncertainty.

What traders are watching

With sentiment improving after the government’s reopening, safe-haven demand has eased—a headwind for gold. However, the upcoming economic data releases and any additional hawkish rhetoric from Fed officials will be critical. The metal’s near-term direction hinges on whether dovish fears about slower growth can overcome the Fed’s hawkish stance on holding rates steady.