Spot gold prices rose 0.6% to US$4,020.60 per troy ounce on Monday (October 26), rebounding from a low not seen since July—a level touched during the previous trading session. The gain followed a correction in oil prices, which eased inflation concerns, while investors engaged in "bargain hunting" near the psychological US$4,000 mark.
The decline in oil prices provided room for gold to recover, following a surge in energy costs last week that had heightened fears regarding inflationary pressure. Nevertheless, oil prices remain near six-month highs, meaning the risk of supply disruptions continues to concern the market and could potentially reignite inflationary pressure.
Investor focus is now squarely on the Federal Reserve’s decision due this Wednesday. The market largely expects interest rates to remain unchanged following the hike in September, while the probability of a rate increase in December stands at approximately 80%. Higher interest rates remain a headwind for gold, as they increase the opportunity cost of holding an asset that yields no return.
Beyond the Fed’s decision, the market is also awaiting U.S. PCE (Personal Consumption Expenditures) data on Thursday—the inflation indicator preferred by the U.S. central bank. This data will serve as a crucial clue as to whether inflationary pressure is strong enough to warrant maintaining a tight monetary policy through the end of the year.
Newsmaker Analysis: The current rebound in gold is best characterized as a technical recovery rather than a confirmed trend reversal. As long as gold can hold its ground near the US$4,000 level, the possibility for consolidation and further recovery remains. However, a hawkish signal from the Fed or a high PCE reading could trigger renewed selling pressure. Conversely, cooling inflation and a more dovish policy stance could strengthen the momentum of gold’s rebound. (yds)