Gold recovered from a sharp midweek selloff, but inflation and Federal Reserve uncertainty kept prices under pressure through October 16.
Gold ended a volatile week lower as investors weighed stubborn U.S. inflation, shifting expectations for Federal Reserve policy and renewed demand for safe-haven assets. December gold futures settled Friday at $4,181.10 an ounce, up 0.3% for the session, while spot gold traded near $4,165 an ounce and was down about 0.7% for the week.
The weekly decline was modest, but the path was anything but calm. Gold entered Monday near $4,200 an ounce before selling pressure intensified as traders prepared for major U.S. inflation reports and watched the dollar remain close to an 18-month high.
December futures fell to $4,190.60 on Monday, then slipped to $4,177.30 on Tuesday. Investors were already cautious because stronger inflation could force the Federal Reserve to keep interest rates higher or raise them again.
That concern became the dominant market force on Wednesday. U.S. consumer prices rose more than expected in September, with headline inflation accelerating to 3.7% from a year earlier. The report increased expectations that the Fed may need to tighten monetary policy again before the end of the year.
Gold reacted quickly. Spot prices dropped 1.8% Wednesday to about $4,083.94 an ounce, the lowest level since October 7. December futures fell 1.7% to $4,107.90.
The pressure came from two directions. The dollar strengthened after the inflation report, making gold more expensive for buyers using other currencies. Treasury yields also moved higher, increasing the appeal of interest-bearing assets compared with gold, which does not pay interest.
The selloff did not last long. Gold reversed sharply on Thursday after the dollar weakened and Treasury yields retreated. December futures climbed 1.5% to settle at $4,170.10, while spot gold rose more than 1% to about $4,153 an ounce.
The rebound came even after another strong inflation reading. Producer prices posted their largest monthly increase in roughly four and a half years, adding evidence that price pressures were not limited to consumer gasoline costs.
Normally, that type of report would be negative for gold because it could strengthen the case for higher interest rates. This time, however, traders also heard more cautious comments from Federal Reserve officials who suggested that an immediate October rate increase might not be necessary.
Federal Reserve Chair Kevin Warsh added to the uncertainty Friday. He described the U.S. economy as resilient but did not offer a clear signal about whether the Fed plans another rate increase at its October or December meetings.
By Friday afternoon, traders largely expected the central bank to leave rates unchanged at its October meeting. Futures markets nevertheless showed a roughly 90% probability of a rate increase by December, according to CME’s FedWatch Tool.
That leaves gold caught between competing forces. Persistent inflation can support demand for gold as a store of value, particularly when investors are worried about the purchasing power of money. At the same time, higher interest rates and rising bond yields can make gold less attractive because investors can earn income from Treasury securities and other fixed-income assets.
The dollar also remains critical. Reuters reported Friday that the dollar index was headed for its first weekly decline in more than a month. A weaker dollar generally supports gold because bullion is priced in dollars and becomes less expensive for buyers holding other currencies.
Treasury markets provided another source of support late in the week. The benchmark 10-year yield retreated from levels above 5.3% earlier in the week and moved closer to 5% as investors bought government bonds during a selloff in technology and artificial-intelligence-related stocks.
Gold also continues to benefit from longer-term demand that has not disappeared during the recent price weakness. The World Gold Council reported that global gold exchange-traded funds recorded strong inflows during September even as gold prices fell sharply.
The council said gold finished September at $4,176 an ounce, down 8.5% for the month. Yet global gold ETFs still attracted about $10 billion, or roughly 67 metric tons, during the month. That unusual combination suggests that some investors continued building gold positions despite weakness in futures prices.
Central-bank buying remains another important part of the market. The World Gold Council reported this week that the People’s Bank of China added 23 metric tons of gold in September, its largest monthly purchase since October 2023. China’s official purchases totaled 63 tons during the third quarter.
Physical demand also showed signs of responding to lower prices. In India, Reuters reported that gold traded at a premium this week for the first time in more than three months as the recent pullback encouraged jewelry purchases.
The broader precious-metals market was also under pressure. Silver traded near $57.05 an ounce Friday and was headed for a weekly decline. Platinum was near $1,626, while palladium traded around $1,114. Both were also on course for weekly losses.
For gold traders, the next major question is whether the market can hold the area around $4,100 to $4,200. Wednesday’s sharp drop showed that inflation and rate expectations can still produce rapid selling, while Thursday’s rebound demonstrated that buyers remain willing to step in when yields and the dollar retreat.
Next week’s direction will likely depend on fresh economic data, corporate earnings, movements in Treasury yields and any new comments from Federal Reserve officials. With December rate expectations still shifting, gold may remain sensitive to even small changes in the outlook for inflation and monetary policy.
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