【TMGM Financial Recap】US Inflation Remains Stubbornly High, Gold Falls Over 1%, but Bulls and Bears Remain Evenly Matched!

On Thursday, the global gold market faced significant selling pressure. Spot gold fell sharply by 1.2%, potentially heading for its second consecutive monthly decline. On the surface, this appeared to be a one-sided sell-off driven by inflation data, but the balance of forces within the market was far more complex. Persistently high US inflation reinforced expectations of a Federal Reserve rate hike, forming the core bearish argument weighing on gold. Meanwhile, simultaneous declines in the US Dollar Index and US Treasury yields, alongside a lower close for international oil prices after volatile trading, provided gold with some cushioning and support. The battle between bulls and bears is becoming particularly clear at this critical juncture.  

The Personal Consumption Expenditures (PCE) Price Index released on Thursday marked a turning point in market sentiment. Data from the US Commerce Department showed that September PCE rose 0.5% month on month, up from 0.3% in August, while the year-on-year increase accelerated from 3.4% to 3.6%. As the Fed’s preferred inflation gauge, the reading clearly indicated that price pressures intensified again towards the end of the quarter. In particular, rising gasoline and other goods prices directly pushed up the headline figure. The market’s response was swift and direct. Following the PCE release, investors rapidly increased their bets on a December rate hike, maintaining pressure on non-interest-bearing gold.  

An inflation outlook that remains persistently above the Fed’s target is the main factor currently weighing on gold, and the PCE report did nothing to ease these concerns. For gold, higher interest rates increase the opportunity cost of holding physical bullion, encouraging capital to flow towards yield-generating assets.  

Meanwhile, third-quarter GDP data released at the same time further strengthened the case for potential Fed action. The US economy grew at an annualised quarter-on-quarter rate of 3.4% in the third quarter, exceeding market expectations of 3.2% and marking its fastest expansion in a year. Strong consumer spending and large-scale corporate investment in AI-related equipment were the two main engines of growth.  

Investors are closely watching the US midterm elections on 3 November. The results could have far-reaching implications for fiscal policy, government spending and overall market sentiment. Meanwhile, the European Central Bank kept interest rates unchanged but warned of inflation risks from sharply rising energy costs, setting the stage for potential divergence in global monetary policy.  

Market Insight:  

With gold prices under pressure for two consecutive months, whether the $4,000 round-number level holds will carry considerable psychological significance. If gold can defend this area despite intense pressure from inflation and rate hike expectations, and gradually stabilise with support from a weaker dollar, lower Treasury yields and softer oil prices, bulls may still have an opportunity to regroup for a renewed advance. Conversely, if the probability of a rate hike rises further and easing geopolitical risks reduce safe-haven demand, gold could continue to test lower support levels.