Summary
- Gold hovered near $4,360 an ounce, with one headline calling it firmer and another lacklustre, as easing oil prices soothed inflation fears while a hawkish Fed, fresh from hiking to 3.75%-4.00%, kept a higher-for-longer rate outlook in play.
Gold's direction now hinges on which inflation signal wins: falling oil, which would ease pressure on bond yields, or central banks that have already shown they are willing to keep hiking. A firmer dollar alongside tighter Fed policy is a headwind for any rally, while steady central bank buying and elevated geopolitical risk continue to limit the downside. A US-Iran settlement is a genuine two-way risk, since lower oil could support gold through lower yields even as reduced safe-haven demand weighs on it. Until one force clearly dominates, range trading looks the most likely outcome.
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Gold spent Wednesday going roughly nowhere, which did not stop two major newswires from describing the journey in entirely different terms.
- Spot gold was little changed around $4,360 an ounce on Wednesday, described as edging up in one early Asia report and as lacklustre in another
- A pullback in oil prices could ease inflation fears that have pushed up bond yields and rate-hike expectations, a potential support for gold
- The Fed raised rates by 25 basis points to 3.75%-4.00% last week and signalled another increase could come before year-end, with the Bank of Japan and ECB also tightening recently
- Boston Fed President Susan Collins said she supported last week's hike, citing risks that inflation could stay above the 2% target
- Some analysts expect gold to weaken further in the fourth quarter as a stronger dollar meets a more hawkish Fed, while seeing solid support around $3,800 from geopolitical risk and central bank buying
- Trump warned he could destroy Iran without a deal, while suggesting an agreement could come soon
Gold spent Wednesday doing very little, though you would be forgiven for thinking otherwise depending on which headline you read first. One early Asia report had the metal edging higher as markets weighed a pullback in oil prices. Another described it as lacklustre, weighed down by expectations that central banks will keep interest rates elevated for longer. Spot gold, for its part, was little changed at around $4,360 an ounce, leaving both descriptions technically correct and neither particularly exciting.
The narrative clash is, in fact, a fair reflection of the forces pulling on the metal. The bullish case runs through oil. Crude has eased as diplomacy between the United States and Iran gathers pace and Saudi supplies recover. If those declines hold, they could ease the inflation fears that have driven bond yields higher and fuelled expectations of further rate increases. Lower yields reduce the opportunity cost of holding gold, which pays no interest, making it more attractive.
The bearish case runs through central banks, and they have not been shy. The Federal Reserve raised its benchmark rate by 25 basis points to a range of 3.75% to 4.00% last week and signalled another increase could come before the end of the year. The Bank of Japan and the European Central Bank have also raised rates recently. Boston Fed President Susan Collins said she backed last week's decision, pointing to the risk that inflation could remain above the Fed's 2% target. Across the Atlantic, Bundesbank President Joachim Nagel said oil prices have become an increasingly important factor in ECB rate-setting, although other indicators also play a key role. While gold is often seen as an inflation hedge, its appeal tends to fade when higher rates lift returns on interest-bearing assets.
Some analysts see the balance tilting against gold in the near term. One research house said rate cuts hold the key to renewed investment interest, and expects further declines in the fourth quarter as a stronger dollar coincides with more hawkish Fed policy. It added, however, that high geopolitical risk and continued central bank purchases should provide a firm floor around $3,800 an ounce, still well below current levels.
Geopolitics adds a further twist. US President Donald Trump warned that he could destroy Iran if there is no deal to end the war, while also suggesting an agreement could come soon amid a diplomatic push at the United Nations. A settlement would complicate matters for gold. It would likely reduce demand for safe havens, but lower oil prices could ease inflation pressure and bring rate cuts closer, which would work in the metal's favour.
For now, gold appears content to let the two stories argue it out. The next US inflation data and further Fed commentary are likely to decide which headline writer is proved right, and in the meantime, both will have to settle for a draw.
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