Gold Edges Higher as Softer Inflation Tempers Rate-Hike Bets

Key Moments

Gold Rebounds Despite Stronger Dollar and High Yields

Investing.com – Gold prices moved higher on Thursday as traders reassessed the likelihood of another Federal Reserve interest-rate increase this month, even as U.S. Treasury yields stayed elevated and the dollar strengthened.

At 09:03 ET (13:03 GMT), spot gold was up 0.5% at $4,179.00 an ounce, while gold futures were also 0.5% higher at $4,208.67 an ounce.

The U.S. dollar index, which measures the greenback against a basket of major currencies, climbed 0.3% to 101.79. A stronger dollar tends to weigh on bullion by making it more expensive for buyers using other currencies.

September Slide Marks Sharpest Monthly Drop Since June

In September, gold retreated 6%, marking its largest monthly loss since June. The decline followed the Federal Reserve’s decision to lift interest rates for the first time since 2023 and to indicate that additional policy tightening may still be required.

Global bond yields advanced over the month as worries about rising government debt burdens and widening fiscal deficits drove term premiums higher. Increased yields raise the opportunity cost of holding non-yielding assets such as gold.

Analysts at HSBC noted that:

“Following liquidation brought on by the Iran conflict, higher oil, inflation and yields, which pumped up the USD, gold rallied on renewed investor interest in late summer. However, the September [Federal Open Market Committee] rate hike, expectations of further rate hikes and rising oil prices pushed gold back on the defensive,” analysts at HSBC said in a note.

Inflation Surprise Eases Pressure for Near-Term Fed Hike

Gold found some support from diminishing expectations of an imminent Fed rate increase this month. The central bank’s preferred gauge of underlying price pressures – the personal consumption expenditures price index excluding food and energy – rose 0.2% in August, below forecasts. The prior month’s reading was also revised lower, offering markets some reassurance on the inflation backdrop.

This data led traders to sharply scale back the odds of another move at the Fed’s October meeting, with the implied probability dropping to around 34%, from nearly 70% earlier in the week.

Robust Consumer Spending Keeps Yields Elevated

At the same time, U.S. consumer spending in August increased at its fastest rate in more than a year, bolstering views that the economy can absorb higher borrowing costs. That resilience underpinned longer dated Treasury yields, which remained close to multi-decade highs.

Key Market Metrics

Investors Look to U.S. Jobs Data for Next Catalyst

Market participants will now focus on Friday’s U.S. employment report for additional insight into the Fed’s policy trajectory and its implications for bullion prices.