Gold (XAUUSD) Holds Firm as Fed Ends Quantitative Tightening and Liquidity Cracks Emerge

The gold (XAU) market continues to respond to shifts in the United States’ macroeconomic and policy environment. The price briefly dropped below the $4,000 per ounce mark but quickly recovered to close the week above that level. The decline from the record high of $4,380 appears to reflect profit-taking at year-end rather than a shift in fundamentals.

Broader economic signals continue to support the long-term bullish case for gold. These include trends in labour markets, consumer confidence, liquidity conditions, and geopolitical risks. This article examines recent market developments and their likely impact on gold prices.

Fed Cuts Rates but Signals Pause

The Federal Reserve reduced the target range for the federal funds rate by 25 basis points to 3.75%-4.00%. However, Chair Jerome Powell quickly dampened hopes of another cut in December. He stated, “A further reduction in the policy rate at the December meeting is not a foregone conclusion,” adding that there is “a growing chorus among officials to at least wait a cycle,” signalling a deliberate pause.

This cautious stance is not unwarranted. Labour market data indicate slowing momentum. It is found that the ADP’s new four-week average showed only 14,250 private-sector job gains as of October 11, 2025. At the same time, the Chicago Fed projects that the unemployment rate will rise to 4.35% in October, signalling a slow but steady deterioration in labour conditions. Slower job growth supports lower interest rates, which serve as a tailwind for gold.

However, Powell’s reluctance to promise more cuts undermines some of that support in the near term. The gold price continues to consolidate around $4,000 key level, following this shift in sentiment, as traders begin to reassess how far the Fed is willing to ease.

Confidence Falls While Inflation Expectations Increase

Consumer confidence metrics present a troubling outlook. The chart below shows that the Conference Board’s headline index dropped to 94.6 in October. This level is the lowest reading since the onset of the pandemic.

On the other hand, the expectations index dropped to 71.5. Historically, readings below 80 have preceded recessions. This index has remained below that threshold since February, indicating persistent pessimism about the economy’s trajectory.

Moreover, inflation expectations remain elevated. The chart below shows that the University of Michigan’s one-year and five-year inflation expectations held at 4.6% and 3.9%, respectively. This aligns with the University of Michigan’s earlier report and supports gold’s inflation-hedge narrative. When consumers expect higher inflation while also losing confidence in economic growth, gold prices tend to benefit.

These indicators suggest that despite short-term volatility in the gold market, the price is adjusting rather than reversing.

Liquidity Cracks Begin to Surface

The market liquidity metrics present a mixed picture. The Chicago Fed National Financial Conditions Index dropped to -0.549, indicating loose financial conditions. This environment would support equities over gold. However, the deeper indicators show a different picture.

Chair Jerome Powell confirmed that the Federal Reserve will end its quantitative tightening program on December 1. The decision aims to ease growing pressure on liquidity. The drop in bank reserves has started to strain short-term funding markets. Over the past three years, the Fed has reduced its balance sheet by $2.4 trillion. However, the impact on liquidity is only now becoming visible.

The chart below shows that a $29 billion injection into the banking system last week signals mounting pressure.

The headline liquidity indicators suggest an easy environment, but the gold market is beginning to price in what lies beneath. The Fed’s urgent decision to end QT and inject $29 billion into the system reveals a liquidity fragility in the banking sector. This fragility is not yet visible in broad indexes but is reflected in the behaviour of central banks.

When central liquidity weakens and policy pivots begin to form behind the scenes, gold gains strategic appeal. Investors recognise that even with loose financial conditions on paper, the system is shifting toward intervention. This pre-emptive support signals deeper risk and reinforces gold’s role as a hedge against structural cracks, not just inflation or rate cuts.

Recession Risks Grow Across Key Economic Indicators

Economic growth is slowing beyond just the Fed and financial markets. The chart below shows that the Philadelphia Fed’s coincident economic activity index is approaching recessionary territory. Declines below 2.5% typically occur just before a recession begins. These signals indicate growing downside risks, given the weak labour growth and consumer sentiment.

On the other hand, recent developments in international trade have also contributed to short-term fluctuations in gold prices. A temporary agreement between the US and China led to reduced trade restrictions and improved commodity flows.

This included lower tariffs and delays in specific export controls. While the announcement helped ease market tensions, the limited scope and duration of the deal raised questions about its long-term impact. As a result, gold prices reacted to the initial optimism and the underlying uncertainty.

Some analysts suggest that the recent trade agreement provides short-term stability rather than a lasting solution. Ongoing uncertainties in global trade continue to weigh on market sentiment. In these environments, gold attracts increased interest as a safe-haven asset.

The easing of trade restrictions in the technology sector has provided short-term relief to the market. However, broader uncertainties persist regarding global supply chains and long-term competitiveness. In this environment of unresolved uncertainty, gold remains a preferred store of value.

Gold and Silver Price Patterns Signal Long-Term Breakout Potential

Gold Holds Ascending Channel as October Correction Finds Support

The gold chart below shows that the price has been trading within a long-term ascending channel since the first quarter of 2023. Gold held this structure for several months before breaking above the channel’s resistance in September 2025. It then reached the extension zone near the $4,400 level, peaking at $4,380 in October.

October is a seasonal period for corrections in gold, and the price pulled back sharply from this resistance zone. It declined toward the ascending channel support near the $3,890 level.

After hitting support, gold formed a candle wick, signalling strong buying interest around that zone. The consolidation in October suggests that gold is forming a bullish base between October and November. This could prepare the market for a strong rally into the new year.

As long as the price holds above the $3,700 region, the bullish structure remains intact. However, a breakdown below $3,700 may open the door for a deeper correction. The next support zone lies between $3,400 and $3,500, before the uptrend is likely to resume in the months ahead.

Gold-to-Silver Ratio Weakens: Silver Poised to Outperform

The gold-to-silver ratio chart shows a long-term upward trend within two ascending channels. The ratio dropped in 2020 during extreme volatility, and price action shifted into a steeper second channel.

The sharp corrections followed each spike toward the upper boundary. The latest peak near 105 was rejected at resistance, and now the ratio is falling back toward the lower boundary. This pattern suggests the recent move may form a bear flag, indicating a possible breakdown. If the ratio falls decisively below 75, it may signal that silver (XAG) is set to outperform gold in the coming cycle.

A falling gold-to-silver ratio usually favours silver over gold. It means silver prices may rise faster than gold, or gold may stall while silver catches up. Historically, these shifts occur during periods of reflation, industrial expansion, or increasing inflation hedges. If the ratio breaks the lower channel, targets could extend toward 64 or even 30 in the long run.

Silver Approaches Historic Breakout After Decades-Long Formation

The above discussion is also confirmed by the silver chart below. It shows a powerful long-term bullish setup, forming a massive cup-and-handle pattern that spans decades. The price is now testing the upper resistance zone near $50, which has capped major rallies since 1980 and 2011.

The rounded base and repeated retests of this resistance indicate substantial accumulation and structural strength. A confirmed breakout above the $50 level would mark a historic shift, potentially unlocking a rapid move toward much higher levels.

This breakout could mark the beginning of a multi-year silver bull run, based on the pattern formation. This move would likely be supported by rising industrial demand, inflation hedging, and silver’s growing strength relative to gold.

Bottom Line

Gold continues to reflect a balance between monetary caution and underlying economic fragility. The Fed’s measured policy stance, along with a slowing labour market and fading consumer confidence, signals a shift in the economic outlook. These factors suggest the U.S. economy is entering a period of soft growth and mild liquidity stress.

While short-term volatility persists, the end of QT and early signs of intervention in the banking system suggest that the Fed may soon lean toward a more accommodative stance. This environment strengthens gold’s long-term position as a hedge against policy uncertainty and weakening real yields.

At the same time, silver’s technical strength adds a new dimension to the precious metals outlook. The gold-to-silver ratio is trending lower, and silver’s decades-long cup-and-handle formation points to a potential historic breakout. If silver clears the $50 resistance zone in 2025, the metal could enter a multi-year bull cycle driven by industrial demand, inflation resilience, and its relative undervaluation.

Overall, gold and silver remain well-positioned for the next phase of the commodities uptrend. Gold offers stability and protection, while silver provides growth and performance. Therefore, a correction in both metals during October and November should be viewed as a buying opportunity for the next phase of growth.