Gold rises 0.5% to $4,014.49 as oil retreats and Fed decision looms
Key Facts
Spot gold rose 0.5% to $4,014.49 an ounce by 0924 GMT on October 26, after touching $3,975 on Friday, its lowest level since July 20, according to Reuters. The rebound came as Brent futures fell 2% to about $114 a barrel, after rising to a six-month high in the previous week. Giovanni Staunovo, an analyst at UBS, said some investors “see the $4,000 level as a buying opportunity.” Kyle Rodda, an analyst at Capital.com, linked gold’s rise to the relief brought by lower oil prices. But he said gains could stall as markets position themselves ahead of the Federal Open Market Committee decision. The move puts the metal between the effect of lower energy prices on inflation concerns and the pressure from U.S. rate expectations.
Monday’s rise does not erase gold’s 4% weekly loss, recorded on Friday and its biggest since June, according to Reuters. The decline came in a week when oil surged, bringing energy-driven inflation concerns back into investors’ calculations. Brent had risen 3.1% to $116.72 a barrel at Friday’s settlement, after trading below $97 at the start of October. The Associated Press said that was crude’s highest level since June 2022. Oil then reversed course on Monday, a retreat Rodda said gave gold some breathing room. The metal’s rebound thus followed a steep weekly loss, with energy prices remaining a volatile factor in inflation expectations.
September data show that rising yields and the dollar added pressure on gold in the previous period. The metal ended the month at $4,176 an ounce, down 8.5% month on month, according to the World Gold Council. The council attributed part of the decline to a 53-basis-point rise in the 10-year U.S. Treasury yield to 5.3%, and a 2% gain in the dollar index. In the same month, global gold exchange-traded funds recorded inflows of $10 billion, equivalent to 67 tonnes, despite the price decline. But managed money positions on COMEX fell by the equivalent of 84 tonnes, while spread positions dropped 156 tonnes; the council said this may have contributed to price pressure. The figures highlight a divergence between global fund inflows and falling positions held by some futures investors.
Monetary policy remains a key focus as the Federal Open Market Committee begins its October 27-28 meeting. CME FedWatch put the probability of a rate hike at Wednesday’s meeting at 9%, compared with an 80% probability of a hike in December, according to a Reuters report published on October 26. On September 16, the committee raised its target rate range by a quarter of a percentage point to 3.75%-4%, saying inflation “remains elevated.” In a report dated October 26, the council said the probability of a hike at the meeting had fallen from about 70% a month earlier to less than 10%. The Associated Press also quoted Federal Reserve Vice Chair Philip Jefferson as saying policymakers need time to form a judgment amid rising long-term interest rates in markets. These bets keep this week’s decision and December expectations central to gold’s outlook, as the metal yields no income.
Oil sensitivity also figures in mining companies’ cost calculations, but Newmont’s disclosure applies to the company and does not establish a realized impact on the entire sector. The company estimated that a $10-per-barrel change in Brent is associated with a direct pretax cost impact of $60 million and an indirect impact of $50 million. The indirect impact includes the company’s exposure to consumables and key inputs. These figures describe estimated sensitivity, not savings or costs already realized. Meanwhile, oil had risen from below $97 a barrel at the start of October to $116.72 at Friday’s settlement, before retreating on Monday to about $114. Those moves help explain why crude prices are again part of the inflation discussion, alongside what their changes mean for the cost estimates of a particular mining company.
The week’s key events continue after the Fed meeting with the release of the U.S. September personal income and outlays report on October 29 at 8:30 a.m. Eastern Time; the report includes the personal consumption expenditures price index, according to the Bureau of Economic Analysis. The World Gold Council expected the PCE index to show inflation accelerating to 3.6% year on year. The council also pointed to an expected rise in U.S. gross domestic product growth in the third quarter from 2.2% to 3.2% in an estimate due Thursday. Minutes of the October meeting are scheduled for release on November 18, and the committee’s next meeting is set for December 8-9. The inflation reading and economic estimate remain among the key data points on this week’s calendar, while the probability of a December rate hike stands at 80%, according to the pricing cited in the Reuters report.