Solid Gold Futures – Gold prices (XAU/USD) saw limited movement during Asian trading on Friday (October 16), failing to build on gains from the previous session. While a weaker US dollar—dropping to a near two-week low—and a decline in US Treasury yields provided some support, expectations of Federal Reserve interest rate hikes continued to cap gold’s upside.
Speaking at the annual meetings of the IMF and the World Bank, Fed official Kevin Warsh reaffirmed the central bank’s commitment to maintaining price stability, though he offered no clear signals regarding interest rate decisions for the upcoming meeting. Warsh emphasized that he did not wish to preempt the committee’s policy deliberations.
This tone left expectations regarding Fed policy largely unchanged. The market continues to anticipate that the central bank will maintain its hawkish stance, even if there is no immediate push to raise rates in October. While this has exerted pressure on the dollar, it has not yet provided sufficient momentum for gold.
A primary headwind for gold stems from persistently high US inflation. The Producer Price Index (PPI) for September surged 1.3% month-on-month and 6.3% year-on-year. The core PPI also rose, climbing 0.7% month-on-month and 5% year-on-year, signaling that price pressures are broadening beyond the energy sector.
These data points reinforce the view that the Fed still has room to tighten policy before the end of the year. The market currently assigns a greater than 90% probability that the US central bank will implement another interest rate hike at its December meeting. The prospect of higher interest rates acts as a drag on gold, as the precious metal does not offer a yield.
Meanwhile, tensions in the Middle East continue to provide support for gold, which is sought after as a "safe-haven" asset. Houthi attacks in Aden, the deployment of French military assets to Saudi Arabia, and reports concerning potential new US-led actions against Iran have heightened geopolitical risks. The combination of a weakening dollar, high inflation, and regional tensions suggests that gold may remain volatile in the short term. (srh)