Gold climbs despite growing expectations of another Fed rate hike

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Gold prices rise

Highlights

Gold rises as falling Treasury yields support safe-haven demand.
Hot U.S. inflation strengthens expectations of another Fed rate hike.
Bond market moves and the October Fed meeting remain key for gold.

Spot gold traded at $4,141.945 an ounce, up 0.91%, while U.S. gold futures stood at $4,166.40, up 1.42%. The recovery came as investors moved into government bonds, reversing an earlier jump in yields triggered by September inflation figures, Bloomberg reports.

Treasury rally helps gold recover

U.S. consumer prices increased 0.6% in September from the previous month, the largest monthly rise since April. Higher fuel costs accounted for much of the increase, although underlying inflation pressures also strengthened.

Treasury yields initially surged Wednesday as traders raised expectations that the Federal Reserve could increase interest rates again. By Thursday, however, the selloff in technology shares had prompted investors to seek safety in government debt, driving yields back down.

That reversal benefited gold, which generally becomes more attractive when bond yields decline because the opportunity cost of holding a non-interest-bearing asset falls.

Other precious metals also advanced. Silver gained approximately 1.5% in early Asian trading, while platinum and palladium moved higher. A weaker U.S. dollar provided additional support for bullion.

Inflation complicates the gold outlook

Despite Thursday's recovery, gold remains under pressure from the inflationary consequences of the U.S.-Iran war. The conflict has disrupted energy supplies and contributed to tighter monetary conditions, leaving bullion more than 20% below its level at the start of the war in late February.

The latest inflation report reinforced expectations that borrowing costs could rise further. Higher interest rates typically weigh on gold by increasing the appeal of interest-bearing investments.

Chicago Fed President Austan Goolsbee also expressed concern about persistent inflation and the possibility that rapid investment in artificial intelligence infrastructure could contribute to overheating in the U.S. economy.

Fed decision becomes the next test

Investors are now focused on the Federal Reserve's October 27–28 policy meeting, with Chair Kevin Warsh scheduled to speak at International Monetary Fund meetings in Bangkok before the central bank enters its communications blackout.

The outcome matters for gold because two competing forces are influencing prices. Demand for safer assets is supporting bullion as equity markets weaken, but another interest rate increase could make holding gold less attractive.

The immediate direction of Treasury yields may therefore prove decisive. A sustained decline would strengthen gold's recovery, while renewed inflation concerns and higher borrowing costs could limit further gains.

Earlier, we reported that oil market risks renewed pressure as Saudi and Russian energy infrastructure comes under threat.

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