Gold remains under pressure after 6% September drop

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Gold remains under pressure

Highlights

Gold lost 6% during September.
Gold futures are trading near $4,180.
Fed rate-hike expectations have eased.

December gold futures were trading at $4,179.55 an ounce, down 0.17%, while spot gold stood at $4,150.04, also down 0.17%, according to the latest market prices. Gold lost 6.7% in September, its worst monthly performance since June, after the Fed raised rates for the first time since 2023 and signaled that additional tightening could follow, Bloomberg reported.

September selloff leaves its mark

The monthly decline came as global bond yields climbed and investors adjusted to the prospect of interest rates staying higher. Rising concerns over government borrowing and deficits also pushed up term premiums, increasing the relative cost of holding gold, which does not pay interest.

That pressure has persisted into October. Long-dated Treasury yields reached multidecade highs on Wednesday, supported by resilient U.S. economic activity and expectations that the economy can withstand tighter financial conditions.

The latest inflation figures, however, offered some relief. Core personal consumption expenditures, the Fed's preferred underlying inflation measure, increased 0.2% in August, less than expected, while the previous month's reading was revised lower.

Fed expectations shift after inflation data

Traders have scaled back the likelihood of another rate increase at the Fed's October meeting. The implied probability fell to roughly 37%, compared with almost 70% earlier in the week, after the softer inflation reading complicated the case for another near-term increase.

The picture is not entirely supportive for bullion. U.S. consumer spending rose at its fastest pace in more than a year in August, evidence that demand remains firm despite higher borrowing costs. Stronger economic activity can keep inflation pressures alive and limit the scope for lower interest rates.

Oil prices also remain an inflation risk, while stalled U.S.-Iran ceasefire discussions continue to provide a geopolitical source of demand for defensive assets.

Gold faces a difficult start to October

Gold enters October caught between two opposing forces. Softer inflation has reduced the immediate risk of another Federal Reserve rate increase, but elevated Treasury yields continue to make interest-bearing assets more competitive with bullion.

The next direction will depend heavily on whether incoming U.S. economic data reinforces the case for tighter monetary policy. Labor-market strength would give the Fed more room to keep policy restrictive, while signs of cooling could ease pressure on bond yields and provide support for gold.

We also reported a Treasury selloff pushes the 10-year yield to a 24-year high.

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