After the US Midterm Election Turmoil, CPI Takes Centre Stage as the Battle Between Gold Bulls and Bears Intensifies!

Despite coming under pressure from strong nonfarm payrolls data last Friday, gold gained 5.2% over the week, recording its best weekly performance since late August. The contrast between a weak daily performance and a strong weekly gain reflects the complex mix of bullish and bearish forces shaping the gold market. On one side, robust employment data has reinforced expectations of a Federal Reserve rate hike, pushing the dollar and US Treasury yields higher and weighing on gold. On the other, geopolitical risks, physical buying and safe-haven demand amid longer-term uncertainty continue to provide support.

This week, US October CPI and PPI inflation data, alongside speeches by several Federal Reserve officials, will take centre stage. The real test of gold’s direction may only just be beginning.

Investors also need to keep monitoring geopolitical risks. After imposing a naval blockade on Iran for several months, the US is stepping up efforts to restrict Tehran’s transport of advanced weapons systems and other sanctioned goods through its land borders and the Caspian Sea. Saudi authorities reported an attempted attack on the Saudi Aramco building in Riyadh, with limited damage. Over the weekend, a third tanker violating restrictions in the Strait of Hormuz suffered an explosion and a major fire. Although US President Trump said another US attack on Iran would be highly unlikely if negotiations made progress, he also stressed that US forces were ready to act, with three aircraft carriers in position and on full combat alert.

The employment report significantly shifted expectations for the Federal Reserve’s policy path. According to CME’s FedWatch tool, investors now see an 80% probability of a December rate hike, up from 72.8% before the nonfarm payrolls report and around 67% last Thursday. This shift puts tangible pressure on gold, as higher interest rates increase the opportunity cost of holding the non-interest-bearing asset.

Market turmoil surrounding the AI boom also deserves attention. Last Thursday, the Nasdaq recorded its largest daily decline in 19 months, while the S&P 500 lost approximately $3 trillion in market value. The sell-off reflected concerns that tighter government regulation of AI infrastructure development following the US midterm elections could curb economic growth. Anxiety over AI’s outlook briefly prompted investors to scale back their substantial bets on a Federal Reserve rate hike next month. Their reasoning was that slower AI-related demand could cool both economic growth and inflation, reducing the urgency for further monetary tightening.

Market Insight:

Looking ahead, US inflation data and speeches by several central bank officials are expected to drive market sentiment this week. Meanwhile, developments in the US–Iran conflict and sharp swings in technology stocks could keep traders on alert. The US will release October CPI and PPI figures, which will be crucial to the Federal Reserve’s December interest rate decision, alongside weekly initial jobless claims. If inflation data continues to show persistent price pressures, expectations of a December rate hike could strengthen further, keeping gold under pressure in the near term. However, signs of cooling inflation or a renewed escalation in geopolitical tensions could bring gold’s safe-haven appeal back to the forefront.