Gold caught a welcome breath on Monday morning, climbing back up after taking a painful 4% beating last week. A slight pullback in crude oil prices helped take some heat off rising inflation worries, while buyers turned their focus toward the Federal Reserve's rate call later in the week.
By 10:57 ET (14:57 GMT), spot gold moved up 0.7% to trade near $4,022.18 per ounce. Gold futures matched that move, adding 0.7% to stand at $4,036.05 per ounce. Just three days earlier on Friday, bullion broke down below the $4,000 mark for the first time since the middle of July, wrapping up a bruising 4.1% weekly slump.
Cooling Oil Gives Bullion Room to Breathe
Much of gold's recent slide came from a sudden spike in crude oil. When oil shoots up, traders immediately worry about another round of sticky consumer prices. Crude slipped just a bit on Monday morning as diplomatic pushback helped cool tensions across the Middle East. That slight drop gave relief to buyers after last week's dramatic 6.2% crude rally, which had marked its strongest weekly close since mid-2022.
When fuel and power get expensive, inflation tends to stick around much longer. That ties the hands of central banks and stops them from lowering interest rates. Higher interest rates hurt non-yielding physical gold because money managers can easily earn guaranteed returns by parking cash in government paper instead.
All Eyes Turn to the Federal Reserve
Traders widely bet the Federal Reserve will leave interest rates right where they are when its October 27-28 meeting wraps up. But everyone is really waiting to see what officials say about their plans for December. As of right now, numbers from the CME FedWatch tool show markets pricing in roughly a 78% chance of another interest rate hike before the year closes.
Market strategists at ING noted that Fed Chair Kevin Warsh will probably keep his Wednesday press conference short and direct, staying true to his usual habit of not giving away too many forward promises.
"We expect his message to be that the economy remains in decent shape, unemployment is low, and inflation is above target. The policy changes being made will be determined by the trends in incoming data, with officials currently thinking that they probably have more work to do," the ING team pointed out in a note to clients.
Upcoming Data Will Set the Tone
Fresh reports on U.S. consumer and factory gate inflation recently arrived hotter than economists anticipated. Those prints reinforced fears that living costs could remain stubbornly elevated, even while general business activity holds firm.
Traders now have their sights firmly set on October 29, when the government releases the U.S. personal consumption expenditures (PCE) price index. As the Fed's single favorite inflation gauge, the readout will serve as the real litmus test for where interest rates go from here.
Key Takeaways for Gold Traders and Commodity Investors
- Reclaiming $4,000:Spot gold finding support above the $4,000 level shows buyers are still willing to step in after heavy drops.
- Crude Oil Sensitivity:Gold prices remain heavily tied to energy markets. Any fresh spike in oil could revive aggressive rate-hike bets and weigh on metals.
- PCE Inflation Test:The upcoming PCE numbers on October 29 will matter just as much as the Fed's words this week in deciding December's rate path.