Gold Loses 4% in a Week as Oil Rises and Fed Decision Looms
Key Facts
Spot gold fell 4% in the week ended October 23, heading for its worst weekly performance since June amid rising energy prices and renewed inflation concerns. The price fell below $4,000 an ounce in trading on October 23 for the first time since mid-July, reaching an intraday low of $3,975.23. It stood at $3,998.35 in a Reuters update published at 11:20 a.m. Eastern time. In the U.S. market, December gold futures settled down 1.3% at $4,007.90 an ounce. The metal came under pressure as oil rose and expectations grew that the Federal Reserve would keep interest rates high.
EL7 data show XAUUSD closed at $3,995.81 on October 23 and at $3,987.08 on October 25. The spot gold price of $3,998.35 cited in the Reuters update reflects trading during the session, while the figure recorded in EL7 data is that day's close. The fall below $4,000 marks a shift from a weekly decline to a test of an important psychological level in the market. UBS said gold could retest support near $4,000 an ounce, expecting buyers to form a floor around that level on dips. This view ties the level's importance to the potential response from buyers, as the metal had already fallen below it during the session.
Rising oil was one source of pressure on gold, stoking concerns about higher energy costs and persistent inflation, which support expectations that U.S. interest rates will stay high. Brent crude futures settled at $116.72 a barrel on October 23, after rising 3.1% during the session, according to the Associated Press. Reuters linked supply-disruption concerns to Houthi attacks in Saudi Arabia. The yield on the 10-year U.S. Treasury note also rose to 4.99% on October 23, from 4.96% at the end of the previous session. Higher yields make income-generating assets more attractive relative to gold, which pays no yield, while inflation pressures put the interest-rate outlook at the center of gold pricing.
These concerns were reinforced by U.S. consumer-price data: the index rose 0.6% in September after a 0.4% increase in August, taking annual inflation to 3.7%. The energy index rose 5.2% during the month, while the gasoline index climbed 9.1%; the increase in gasoline accounted for more than half of the overall monthly rise in prices. On September 16, the Fed raised its target range for interest rates by a quarter of a percentage point to 3.75%-4% and said inflation remained elevated. The central bank described economic activity as expanding at a solid pace and said domestic spending had held up. That means market bets ahead of the October meeting come after an earlier rate increase, with inflation still above the Fed's target, according to its statement.
The price decline did not prevent some indicators of physical demand from improving: gold purchases in India rose during the week as prices fell during the Dussehra season, and premiums there increased. In China, physical demand remained steady as consumers continued to be cautious about jewelry purchases, according to Reuters. By contrast, a drop in technology stocks added to pressure on metals, as margin calls on investors and traders prompted sales of gold and silver assets to raise liquidity. These factors reveal two concurrent trends: Indian buying that took advantage of lower prices, and forced sales of metal assets amid pressure in equity markets. But rising oil and yields remained at the center of inflation and interest-rate concerns during the week.
Ahead of the Fed meeting scheduled for October 27 and 28, traders assigned a 92% probability to rates holding steady, versus a 78% probability of a rate increase in December, according to the CME FedWatch tool, as reported by Reuters. These are market-implied probabilities, not an announced decision by the central bank. The Federal Open Market Committee statement is due on October 28 at 2:00 p.m., followed by a news conference with the chair at 2:30 p.m. The U.S. personal consumption expenditures report is due on October 29; it is the Fed's preferred inflation measure and may provide additional signals to markets. The report comes after the monetary policy meeting, in a week when inflation, rate bets and energy-price pressure on gold converge.