【TMGM Financial Recap】How Are Falling Oil Prices and a Weaker Dollar Driving Gold to a Three-Week High Ahead of US CPI as Trump Plays Down Further Action Against Iran?

A strong recovery swept global gold markets on Monday as spot gold surged more than 1.5% to reach a three-week high. Risk sentiment improved and oil prices extended their decline after Trump downplayed further military action against Iran. Support also came from a sizeable October increase in the gold holdings of China’s central bank. While several favourable factors are underpinning gold in the near term, expectations that interest rates will remain elevated are still capping its advance. Inflation trends and geopolitical events will be central to the outlook. After a short-lived adjustment to last week’s nonfarm payrolls report, investors are once again looking to the forthcoming US inflation figures for indications of the Federal Reserve’s future interest rate trajectory.

Most of Friday’s gains in the US Dollar Index were reversed on Monday. For overseas buyers, dollar-denominated gold becomes directly cheaper when the dollar weakens, improving the metal’s relative attractiveness. At the same time, a steep fall in international oil prices to their lowest levels since late August substantially reduced worries that inflation would remain elevated.

High energy prices have been a key driver of rising inflation expectations since the Iran-related conflict escalated in late February, compelling central banks to keep interest rates high. Such rates make gold less competitive against assets that generate a yield; the sharp retreat in oil prices is now providing temporary respite from that pressure. Hopes for an early end to the war with Iran had already strengthened after the Democrats won both chambers of Congress in the midterm elections, contributing to gold’s gain of approximately 5% last week. That advance was interrupted on Friday when a stronger-than-expected US nonfarm payrolls report bolstered expectations that the Fed could retain higher interest rates for longer. On Monday, market sentiment received fresh support from Trump’s comments further playing down the need for military action.

A notable development also strengthened gold’s longer-term outlook, beyond the market’s near-term swings. China’s central bank added approximately 25.8 tonnes to its gold reserves in October, according to the World Gold Council, its biggest monthly purchase in three years. This is a significant figure. Post-election policy uncertainty is undermining confidence in the US dollar system, while US Strategic Petroleum Reserve inventories have fallen to 279.5 million barrels, the lowest since October 1982. In this environment, sustained purchases by major central banks demonstrate enduring confidence in gold as a reserve asset.

Market Insight: Can US Inflation Sustain Gold’s Advance?

This week’s US inflation figures remain the market’s key consideration, despite the near-term support gold is receiving from geopolitical developments and lower oil prices. A strong CPI reading could further reinforce expectations of a December Fed rate hike, potentially restricting gains in gold. Clear evidence that inflation is easing, by contrast, could prompt markets to price in a transition towards monetary easing more quickly, creating scope for gold to advance further.