【TMGM Financial Recap】Stubborn US Inflation Persists as Gold Declines Over 1%, While Neither Bulls nor Bears Gain the Upper Hand!

Persistently high US inflation bolstered expectations of a Federal Reserve rate hike on Thursday, leaving global gold markets facing substantial selling pressure. A sharp 1.2% fall in spot gold put the metal at risk of a second successive monthly decline. Yet the apparent inflation-driven sell-off masked a more complicated balance of market influences. Although the prospect of higher US interest rates remained the central bearish argument, gold found some protection as the US Dollar Index and US Treasury yields both declined. International oil prices also settled lower following volatile trading, adding to that support. At this pivotal stage, the opposing pressures on gold are coming into sharper focus.  

September’s Personal Consumption Expenditures (PCE) Price Index rose 0.5% month on month, against 0.3% in August, US Commerce Department figures showed on Thursday. Annual growth accelerated to 3.6% from 3.4%. The release shifted market sentiment: the Fed’s preferred measure of inflation showed renewed intensification of price pressures as the quarter drew to a close. More expensive petrol and other goods contributed directly to the higher headline figure. Investors were quick to respond, stepping up bets on a December rate hike after the PCE release and sustaining downward pressure on gold, which pays no interest.  

For gold, the principal headwind remains the prospect of inflation persisting above the Fed’s target, a concern left undiminished by the PCE figures. As interest rates rise, holding physical bullion carries a greater opportunity cost, encouraging funds to shift into assets that offer a yield.  

Further grounds for possible Fed action emerged from the third-quarter GDP release, which accompanied the inflation figures. Annualised quarter-on-quarter growth in the US economy reached 3.4%, outstripping the market’s 3.2% expectation and representing the quickest expansion in a year. The advance rested chiefly on two drivers: resilient consumer spending and sizeable business investment in AI-related equipment.  

With the US midterm elections scheduled for 3 November, investors are monitoring a vote whose outcome could materially affect fiscal policy, government spending and wider market sentiment. In Europe, the European Central Bank left interest rates on hold while highlighting the inflation threat posed by steep increases in energy costs. Its warning opened the possibility of diverging monetary policy paths globally.  

Market Insight: Gold’s Support Faces a Crucial Test 

The $4,000 round-number level now has considerable psychological importance after gold has spent two consecutive months under pressure. Holding that area in the face of strong inflation and expectations of higher interest rates would leave room for bulls to regroup for a fresh advance, provided a weaker dollar, falling Treasury yields and softer oil prices help the metal gradually find its footing. The alternative is a further rise in the likelihood of a rate hike, combined with diminished safe-haven demand as geopolitical risks recede. In that scenario, gold could extend its tests of support at lower levels.