On Monday, gold suffered a sharp plunge. Spot gold hit a low of $4110.67 per ounce and closed at $4114.78 per ounce, slumping by nearly 4% on the day to hit a stage low. The previously stable short-term pattern quickly turned bearish. The steep drop in gold prices was mainly driven by US inflation data and hawkish official comments, which boosted market expectations that the Federal Reserve would maintain high interest rates or even raise rates again in October. This pushed US Treasury yields and the US dollar higher simultaneously, significantly raising the opportunity cost of holding gold. Gold halted its decline and staged a mild weak rebound on Tuesday, entering a technical recovery phase after the sharp fall, yet the overall bearish dominance remained unchanged. Going forward, focus will be placed on US inflation, employment data and Fed policy signals, which will determine the future trend of gold prices. At press time, spot gold traded in a narrow range above $4150.00 per ounce.

The US dollar remained firm on Tuesday as the market awaited speeches from Fed officials and key US economic data. Later in the day, the US will release the September Consumer Confidence Index and August JOLTs job openings data. In addition, multiple Federal Reserve policymakers are scheduled to deliver remarks. Current market expectations for a Fed rate hike in October have risen. Combined with the lack of progress in resolving the Middle East conflict, this underpinned the US dollar and pushed the US Dollar Index close to the 101.50 level. According to the latest CME FedWatch Tool, markets are now pricing in a 72.5% probability of a Fed rate hike in October. Besides, investors are closely monitoring a series of other US economic data due this week, including September ADP employment figures, August PCE data and the September Non-Farm Payrolls report, to seek new clues regarding the Federal Reserve’s monetary policy direction.

Fed Governor Cook stated on Monday that she believes artificial intelligence and rising oil prices will continue to push up inflation in the coming months, though any further rate hikes will depend on economic data. Speaking in Oakland, California, Cook said the construction of AI infrastructure, along with spillover effects from higher oil prices and supply chain disruptions triggered by the Middle East conflict, will continue to put pressure on inflation. She warned that while artificial intelligence has so far lifted inflation in specific sectors, demand for this technology may spread to broader areas of the economy. Cook added that inflation data shows signs this pressure may be widening. Nevertheless, she is also closely watching whether AI will lead to a rise in unemployment. Should that happen, the Federal Reserve will have limited policy tools available, for while rate cuts could ease the impact of AI on the job market, they may worsen inflation.

For the short-term gold market outlook, the upside resistance level for spot gold stands at $4350.00 per ounce, and the downside support level is seen at $4100.00 per ounce.

Spot Gold Daily Chart

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