【TMGM Financial Recap】Over 1% Decline in Gold Amid Stubbornly High US Inflation, Yet Neither Bulls nor Bears Take Control!

Spot gold dropped 1.2% on Thursday. The sharp fall reflected heavy selling across the global gold market and left the metal potentially on course for a second consecutive monthly decline. Inflation figures appeared to explain a one-way retreat, yet the underlying market dynamics were more complicated. Expectations of a Federal Reserve rate hike, reinforced by persistently high US inflation, remained the dominant bearish influence. Offsetting some of that pressure were concurrent declines in the US Dollar Index and US Treasury yields, together with international oil prices closing lower after volatile trading. These competing bullish and bearish forces are becoming especially apparent at this critical point.  

Thursday’s turning point for sentiment came with the release of the Personal Consumption Expenditures (PCE) Price Index. September’s monthly increase reached 0.5%, following 0.3% in August, according to the US Commerce Department. On a year-on-year basis, the increase accelerated from 3.4% to 3.6%. The figures from the Fed’s preferred inflation gauge clearly signalled that price pressures had gathered strength again late in the quarter. Higher prices for petrol and other goods directly contributed to the rise in the headline figure. A rapid repricing of December rate hike expectations followed: investors increased their bets on a rise, leaving gold, which bears no interest, under continued pressure.  

Gold’s main burden remains an outlook for inflation persistently above the Fed’s target. Nothing in the PCE report alleviated that concern. Holding physical bullion becomes more costly in opportunity-cost terms when interest rates rise, encouraging capital to seek assets that produce a yield instead.  

Released alongside the inflation report, third-quarter GDP figures added weight to the argument for potential Fed action. Growth of 3.4% on an annualised quarter-on-quarter basis put the US economy ahead of market expectations of 3.2%, recording its fastest expansion in a year. Behind that performance were two principal sources of demand: strong consumer spending and large-scale corporate investment in AI-related equipment.  

The approaching US midterm elections on 3 November remain under close investor scrutiny, given the potentially far-reaching effects of the outcome on fiscal policy, government spending and overall market sentiment. A separate policy signal came from the European Central Bank. Despite holding interest rates steady, it warned that sharply rising energy costs threatened inflation, creating the possibility of greater divergence in monetary policy worldwide.  

Gold Market Insight:  

$4,000 is the psychologically significant round-number level to watch after two consecutive months of pressure on gold prices. A defence of that area against intense inflation and rate hike pressures, followed by gradual stabilisation supported by a weaker dollar, lower Treasury yields and softer oil prices, could still allow bulls to regroup and attempt another advance. Should the probability of a rate hike climb further, however, while receding geopolitical risks curb safe-haven demand, further tests of lower support levels could follow.