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

Global gold markets rebounded strongly on Monday, with spot gold jumping more than 1.5% to a three-week high. Trump played down further military action against Iran, boosting risk sentiment and accelerating the decline in oil prices. A substantial increase in China’s central bank gold holdings in October also provided support. Several positive factors are supporting gold in the short term, although expectations of persistently high interest rates continue to constrain gains. The outlook will depend heavily on inflation and geopolitical developments. Following a brief adjustment after last week’s nonfarm payrolls report, markets have shifted their attention back to upcoming US inflation data for further clues about the Federal Reserve’s interest rate path.

The US Dollar Index fell on Monday, giving back most of Friday’s gains. A weaker dollar directly reduces the cost of dollar-denominated gold for overseas buyers, enhancing its relative appeal. Meanwhile, international oil prices dropped sharply to their lowest levels since late August, significantly easing concerns about persistently elevated inflation.

Since the escalation of the Iran-related conflict in late February, elevated energy prices have been a major factor driving inflation expectations higher and forcing central banks to maintain high interest rates. High interest rates reduce gold’s competitiveness relative to yield-bearing assets, while the rapid decline in oil prices now offers some temporary relief from this pressure. The Democrats’ capture of both chambers of Congress in the midterm elections had already raised hopes of an early end to the war with Iran, helping gold gain approximately 5% last week. However, Friday’s stronger-than-expected US nonfarm payrolls report reinforced expectations that the Fed could keep interest rates higher for longer, triggering a pullback in gold prices. Trump’s remarks on Monday further downplaying the need for military action provided another boost to market sentiment.

Beyond short-term fluctuations, the gold market also received a significant positive signal for its longer-term outlook. According to the World Gold Council, China’s central bank increased its gold reserves by approximately 25.8 tonnes in October, marking its largest monthly addition in three years. The significance of this figure should not be underestimated. Against a backdrop of post-election policy uncertainty weighing on confidence in the US dollar system, and US Strategic Petroleum Reserve inventories falling to 279.5 million barrels—their lowest level since October 1982—continued gold purchases by major central banks reflect lasting confidence in gold’s value as a reserve asset.

Market Insight:

Although geopolitical developments and falling oil prices are supporting gold in the short term, the market’s main focus remains on this week’s US inflation data. If CPI remains strong, expectations of a Fed rate hike in December could strengthen further, potentially limiting gold’s upside. Conversely, clear signs of cooling inflation could accelerate market pricing of a shift towards monetary easing, opening the door to further gains in gold.