【TMGM Financial Recap】Ahead of US CPI, Gold Rises to a Three-Week High on Lower Oil Prices and a Weaker Dollar as Trump Downplays Further Action Against Iran!

Monday’s gain of more than 1.5% lifted spot gold to a three-week high as global gold markets staged a pronounced recovery. By downplaying further military action against Iran, Trump encouraged an improvement in risk sentiment and a faster decline in oil prices. October’s sizeable increase in the gold holdings of China’s central bank offered additional support. Although a number of favourable influences are underpinning gold in the near term, expectations that interest rates will stay high continue to limit its advance. Inflation and geopolitical developments will be crucial to the outlook. After briefly adjusting to last week’s nonfarm payrolls report, investors are again awaiting US inflation figures for a clearer indication of the Federal Reserve’s future interest rate course.

Most of the US Dollar Index’s Friday advance was erased in Monday’s decline. With dollar weakness directly lowering the cost of dollar-priced gold for buyers overseas, the metal’s relative appeal improved. A sharp retreat in international oil prices to levels last seen in late August also brought a marked reduction in concerns that inflation would remain elevated.

Higher energy costs have played a central role in lifting inflation expectations since the conflict involving Iran intensified in late February, forcing central banks to retain high interest rates. Gold is less competitive against yield-bearing assets when rates are high, so the swift fall in oil prices is providing temporary relief from that constraint. Last week’s gain of approximately 5% in gold had been helped by hopes that the war with Iran might end sooner, following the Democrats’ victory in both chambers of Congress at the midterm elections. Those gains were checked on Friday: stronger-than-expected US nonfarm payrolls figures increased expectations that the Fed could leave interest rates higher for longer, prompting gold prices to retreat. Sentiment improved again on Monday when Trump further downplayed the need for military action.

A development with implications beyond daily price movements also lent support to gold’s longer-term prospects. The World Gold Council reported that China’s central bank added approximately 25.8 tonnes to its gold reserves in October, the largest monthly increase in three years. That figure carries considerable significance. Uncertainty over policy following the elections is eroding confidence in the US dollar system, while US Strategic Petroleum Reserve inventories have dropped to 279.5 million barrels, their lowest level since October 1982. Against that backdrop, ongoing purchases by major central banks indicate sustained confidence in gold’s worth as a reserve asset.

Market Insight: Inflation Data Set the Course for Gold

This week’s US inflation releases take precedence for markets, even as cheaper oil and geopolitical developments lend gold near-term support. A still-strong CPI reading could increase expectations of a December rate rise by the Fed, potentially curbing gold’s advance. If the figures instead show clear evidence of easing inflation, markets could move more quickly to price in a shift towards monetary easing, allowing scope for further gold gains.