- Gold gave back part of Monday’s rally. Bullion fell as much as 0.8% to trade near $4,110 an ounce on Tuesday and spot gold was 0.7% lower at $4,110.81 as of midday Singapore time, after a near 2% rise on Monday stoked by a slump in Brent on hopes for a breakthrough in US-Iran peace talks, Bloomberg reported.
- The Fed is the main headwind. Federal Reserve officials have stressed the need to tame inflation, with Richmond Fed President Tom Barkin and Chicago Fed President Austan Goolsbee pointing to a strong economy and inflationary pressures on Monday, and the swap market is pricing more than an 80% chance of a quarter-point hike at the December meeting, a drag on a metal that pays no interest.
- Conviction is thin. The consensus for gold is “moderately bullish to sideways” heading into year-end, but the metal lacks a clear narrative, said Nicky Shiels of MKS PAMP, who wrote that “conviction is low as major allocators sit on the sidelines until January,” leaving short-term moves to trend-following trades and physical demand.
- Other metals followed. Silver fell 0.8% to $52.99 after rising nearly 3% in the previous session, while platinum and palladium were little changed, and the Bloomberg Dollar Spot Index was marginally higher after dropping 0.5% on Monday, a decline that had supported gold.
What Happened?
Oil extended its decline on Tuesday, but that was not enough to keep gold rising as traders focused on the Fed. Oil and gold have mostly moved in opposite directions this year, as elevated energy prices fueled inflation and tighter monetary policy, a headwind for the non-yielding metal. The Fed raised rates in September for the first time since 2023 after the oil surge tied to the US war against Iran helped spur inflation, and markets see about two hikes by next summer, down from three fully priced as recently as last month.
Why It Matters?
Gold is caught between two forces: lower oil eases the inflation outlook, which should reduce pressure for hikes, while Fed officials are still signaling that rates may need to rise. With swaps assigning high odds to a December hike, the opportunity cost of holding bullion remains elevated, which helps explain why Monday’s jump faded. A softer dollar has offered some support, but Shiels’ view that big allocators are waiting until January suggests rallies may lack follow-through for now. That leaves the metal more sensitive to each inflation release than to geopolitical headlines.
What’s Next?
Tuesday’s US consumer price report, the last before the Fed’s December meeting, is the next catalyst, with economists expecting prices to have risen 0.3% in October from September’s 0.6%, according to a Bloomberg survey. A hotter reading could pull rate-hike expectations forward and weigh on gold, while a soft print could revive Monday’s rally. Watch also the direction of oil and the dollar, and whether allocators return in January as MKS PAMP expects.
