【TMGM Financial Recap】Gold Drops Over 1% as US Inflation Stays Stubbornly High, Yet Bulls and Bears Remain in Balance!

Heavy selling weighed on the global gold market on Thursday, with spot gold sliding 1.2% and potentially heading towards a second consecutive monthly decline. Although inflation data appeared to have triggered a one-sided sell-off, the market was being shaped by a more complex mix of forces. Stubbornly high US inflation strengthened expectations of a Federal Reserve rate hike, providing the principal bearish case for gold. Some support, however, came from concurrent falls in the US Dollar Index and US Treasury yields, while international oil prices also closed lower after a volatile session. At this crucial juncture, the contest between bullish and bearish forces is becoming increasingly evident.  

Market sentiment shifted following Thursday’s release of the Personal Consumption Expenditures (PCE) Price Index. According to the US Commerce Department, September PCE increased 0.5% month on month, compared with 0.3% in August. The year-on-year rise also quickened, reaching 3.6% from 3.4%. The Fed’s preferred inflation measure thus pointed clearly to renewed price pressures towards the quarter’s end, with higher petrol and other goods prices directly lifting the headline reading. Investors reacted promptly to the release by increasing bets on a December rate hike, keeping non-interest-bearing gold under pressure.  

The prospect of inflation staying persistently above the Fed’s target remains the primary drag on gold, and the PCE report offered no relief from those concerns. Higher interest rates raise the opportunity cost of holding physical bullion, prompting capital to move towards assets that generate a yield.  

The case for possible Fed action gained further support from third-quarter GDP figures published alongside the inflation data. At an annualised quarter-on-quarter rate of 3.4%, US economic growth surpassed the market forecast of 3.2% and was the strongest in a year. Two factors drove the expansion: robust consumer spending and substantial corporate investment in AI-related equipment.  

The US midterm elections on 3 November are also drawing close investor attention, as their outcome could have wide-ranging consequences for fiscal policy, government spending and broader market sentiment. Elsewhere, while leaving interest rates unchanged, the European Central Bank cautioned that sharply higher energy costs posed inflation risks. This created scope for global monetary policy paths to diverge.  

Market Insight: Can Gold Defend $4,000?  

After two consecutive months of pressure on gold prices, the ability to hold the $4,000 round-number mark will have substantial psychological importance. Bulls may yet get a chance to regroup for another advance if gold defends this zone against strong inflation and rate hike pressures, then gradually stabilises with help from a weaker dollar, lower Treasury yields and softer oil prices. If, instead, rate hike probabilities increase further while easing geopolitical risks weaken safe-haven demand, gold could keep testing lower support levels.