Gold suffered heavy losses on Wednesday weighed down by macro factors. The US Dollar Index rose by 0.4%, and growing fiscal concerns in France weakened the euro, further boosting the safe-haven appeal of the US dollar and raising gold purchase costs for holders of non-US currencies. Spot gold dipped to a more than two-month low at $4066.23/oz during the session. It traded in a pattern of sharp fall followed by a weak rebound, closing at $4110.65/oz with a 1.2% single-day drop. As oil prices and US Treasury yields climbed, gold’s rebound lost steam on Thursday. Markets expect the Federal Reserve to raise borrowing costs further to fight inflation. Higher energy prices continue to push up US Treasury yields, and geopolitical uncertainty stemming from ongoing conflicts in the Middle East keeps supporting the safe-haven US dollar, thereby limiting large gains in gold. At press time, spot gold trades near $4121.20/oz, with bears still in control.
The Fed meeting minutes released overnight showed that Fed officials anticipate another interest rate hike before year-end to curb inflation that has stayed above target for more than five years. After the September meeting, Chair Walsh struck a hawkish tone on inflation during a press briefing, prompting markets to bet on another Fed move at the late-October meeting. However, recent inflation data and remarks from senior Fed officials suggest the odds of an October hike are low, as economic figures released over the past few weeks have completely changed the outlook. Core PCE, the Fed’s preferred inflation gauge, rose by only 3% in August, below the 3.3% forecast and down from 3.3% in July. Meanwhile, September jobs data fell far short of market expectations, with only 29,000 new nonfarm payrolls and the unemployment rate edging up from 4.1% to 4.2%. The FOMC will convene again on October 27–28. Futures markets price the probability of an October rate hike at just 19.4%, while the odds for a December hike stand at roughly 87.6%.
Fed Governor Waller stated in a speech at the Istanbul Economic Forum hosted by the Central Bank of Turkey on Thursday that inflation remains too high, and he expects multiple further rate hikes to cool price pressures. Waller argued economic data have not materially altered the narrative from the September meeting and that the US economy remains largely unchanged. He added that if economic data keep meeting expectations, further rate increases will be needed to return inflation to the Fed’s 2% target in a timely manner. Yet there is flexibility on timing; hikes do not need to occur at consecutive meetings and can be implemented within an acceptable timeframe. In addition, Waller remains concerned about tariffs and noted sustained trade conflicts could reapply upward pressure to inflation.
For the short-term gold outlook, spot gold faces resistance at $4250.00/oz, while support sits at $4000.00/oz.
Spot Gold Daily Chart
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