Gold prices briefly fell to a two-month low of $4,066.30 per ounce earlier last week before bargain hunting flowed in, pushing spot gold back up to a one-week high. On Friday, spot gold rose 1.5% to $4,194.99 per ounce, gaining about 1.3% for the week; US December gold futures rose 1.4% to settle at $4,216.3 per ounce. However, in early trading on Monday (October 12), gold prices fluctuated in a narrow range, currently trading around $4,195 per ounce, with market sentiment still cautious. Overall, gold is in a period of consolidation and repair above the $4,000 psychological threshold, with bulls and bears engaged in a fierce tug-of-war over the Fed's rate hike path, dollar strength, US Treasury yields, and geopolitical risks.
Gold Prices Fell Then Rebounded, a "Bottom Feeling" Emerging Near $4,000
Last week's gold price action could be described as shocking first and stabilizing later. Early in the week, a stronger dollar and rising US Treasury yields pressured the non-yielding asset, with spot gold briefly falling to $4,066.30 per ounce on Wednesday, hitting a two-month low. Just as the market feared gold could slide further toward $4,000 or even lower, bargain hunters began to step in. Rhona O'Connell, Head of Market Analysis at Stone X, said gold prices rose due to "bargain hunting, with a bottom gradually forming near $4,000." She believes the market has already priced in expectations of further Fed rate hikes and continued net buying by official institutions. Absent any "black swan" event, gold prices would struggle to convincingly break higher. This statement highlights the core contradiction facing gold: physical buying and central bank purchases provide support on the downside, while rate expectations and a strong dollar cap the upside. Friday's rebound was more the result of short covering and bargain-hunting allocation working together, rather than a signal of a trend breakout.
Fed and Treasury Yields, the "Interest Rate Ceiling" Above Gold
The biggest resistance to gold's rebound still comes from the Fed and the bond market. St. Louis Fed President Musalem said last Thursday that the Fed needs to raise rates again to bring inflation back to its 2% target. The CME FedWatch Tool shows traders currently estimate an 18% probability of a Fed rate hike in October, and an 84% probability of at least a 25 basis point hike by the end of December. In a high-rate environment, gold's appeal often falls short of yield-bearing assets, which is an important reason gold was previously under pressure. Han Tan, Chief Market Analyst at Bybit, said this week's Consumer Price Index release could serve as a catalyst for gold's next significant move. If inflation proves stubborn and forces the Fed into a steeper rate hike cycle, spot gold could test the $4,000 psychological support level again. However, the bond market has not entirely sided with the bears. The US 10-year Treasury yield retreated from the over 20-year high touched last Wednesday, with Treasury prices falling on Friday as investors took profits ahead of last week's inflation data release. The 10-year yield rose 2.8 basis points to 5.261%, but fell 3.5 basis points for the week, the largest weekly decline in two months; the 30-year yield edged up to 5.608%, down 2.9 basis points for the week; and the two-year yield rose 4.4 basis points to 4.799%, down 3.4 basis points for the week. Chip Hughey, Managing Director of Fixed Income at Truist Wealth, said strong demand at this week's 10-year and 30-year Treasury auctions drove sharp price gains, with Friday's pullback being a normal breather after yields fell substantially across maturities. Interest rate futures markets show an 80% probability that the Fed will hold rates steady at this month's policy meeting. Nomura Securities economist Ruchir Sharma also believes that as the temporary boost from wireless communication service prices fades, September core CPI inflation may retreat, and given the Fed has no urgent need for consecutive rate hikes and with midterm elections approaching, inflation forecasts are unlikely to raise the odds of an October Fed hike. University of Michigan data shows consumer inflation expectations for the coming year rose from 4.6% in September to 4.7% in October, well above the 3.4% before the Iran war broke out in February; the consumer sentiment index fell further to 46.3 in early October from 48.1 in September. Hughey noted that when the 10-year Treasury yield approaches 5.30%-5.35%, it typically attracts buying interest, and stocks also show unease, with risk assets sold off, thereby limiting further yield increases. This means the suppression of gold by Treasury yields is not linear; once yields approach short-term highs, gold may actually get a breather.
Strong Dollar Weighs but Safe-Haven Premium Persists
Investors are concerned about France's record public debt and the difficult political resistance to budget cuts; in contrast, the US economy and dollar are performing strongly, with the dollar index rising 0.12% on Friday to close at 102.23, up about 0.3% for the week, marking a fourth consecutive weekly gain and the longest winning streak since May 2025. A strong dollar typically pressures dollar-denominated gold, but the market is not moving in one direction. Risk premiums on French and Italian government bonds are set to decline this week after surging in late September, with investors awaiting new developments before demanding higher returns to compensate for fiscal and political risks. Spain's announcement earlier this week of early elections has also added pressure on the euro. Eugene Epstein, Head of Trading and Structured Products at Moneycorp, said multiple factors are currently intertwined, including rising oil prices and France's problems, making it hard to say which factor has a greater market impact; the market is relatively in a wait-and-see mode, with everyone awaiting successive Fed officials' speeches, as the dollar is currently highly sensitive to each Fed official's remarks. For gold, a strong dollar is a short-term headwind, but European fiscal and political risks, US midterm election uncertainty, and Middle East tensions continue to preserve a safe-haven premium for gold.
Storm Clouds Remain Over the Strait of Hormuz
Geopolitically, the situation in the Strait of Hormuz has once again gripped market nerves. Iran's Revolutionary Guard reported on Sunday (October 11) that a mine exploded, affecting a supertanker passing through the Strait of Hormuz, with the explosion igniting the engine room. The Revolutionary Guard said the tanker was carrying crude oil toward the Persian Gulf exit but had turned off its navigation system and was traveling on an unauthorized route. Iran stated this was the third attack on a tanker in the past two days and blamed the incidents on tankers sailing in restricted zones. The Revolutionary Guard warned that all vessels that turn off navigation and identification systems will be considered hostile acts and will face severe and decisive consequences. Iran has declared the Strait of Hormuz closed and warned that only routes authorized by its armed forces are safe for passage. This maritime channel is strategically vital for international oil transport, connecting the Persian Gulf with sea routes to global markets. The US side insists it has not blockaded the strait and claims military control over the area, though reports indicate its military presence is limited to the outer portion of the strait. Meanwhile, Rezaei, Secretary of Iran's Supreme National Security Council, said on the 11th that the US has accepted some of Iran's conditions for reopening the Strait of Hormuz, but whether other conditions can be met remains unclear. Rezaei said that over the past two months, the US has asked Iran to propose a plan through three channels: Pakistan, Qatar, and Iraq. Iran listed seven conditions for the US and made clear that without these conditions being met, it will not open the Strait of Hormuz or negotiate. He said the US has responded, but Iran considers the response insufficient, and the US needs to clarify some ambiguities; Iran will observe whether the US can address its concerns before deciding on next steps. Rezaei also warned that if the US launches another act of aggression against Iran, US assets in West Asia, including critical data systems and artificial intelligence facilities, will become targets. He also said Iran is prepared to demonstrate new military capabilities if war reignites, and refuted US claims about the Strait of Hormuz being open, saying some vessels are operating through smuggling networks and current shipping volumes remain far below pre-war levels, and Iran will continue to hold management authority over the strait. Middle East tensions keep oil prices elevated, supporting Fed rate hike expectations and dollar safe-haven demand, which tends to pressure gold prices, and investors need to continue monitoring Middle East-related news.
Institutional Views and Survey: Half of Wall Street Bullish, Retail Still Not in Majority
From an institutional perspective, market views are clearly divided. Adrian Day, President of Adrian Day Asset Management, holds a neutral view, expecting more back-and-forth volatility before the war ends, which would lead to lower CPI expectations and ease central bank rate hike pressure. The war's end would also eliminate the dollar's safe-haven premium. He does not expect a significant gold price decline, but also not a breakout. James Stanley, Senior Market Strategist at Forex, expressed a bullish view, believing last week may have seen capitulation selling, with sellers quickly retreating from lows after clean selling pressure. The weekly close in the green is noteworthy, and while predicting a bottom is difficult, increasing evidence shows gold is consistently finding buyers near $4,000. Rich Checkan, President and Chief Operating Officer of Asset Strategies International, expressed a bullish view. The current mainstream view is that the Fed will not hike rates at its October FOMC meeting, which would ease short-term pressure on gold. Treasury yields and a strong dollar will limit gains, but gold should still rise this week. Kevin Grady, President of Phoenix Futures and Options, is watching this week's CPI report to observe gold's short-term reaction and clues about the Fed's medium-term direction, but he warns that one number cannot truly reflect the complexity of the situation. He said the key is how the Fed digests this data. After the previously weak jobs data of 29,000 was released, the market rose because everyone thought the Fed would not hike again, and now everyone is trying to figure out what the Fed will do. The Kitco News gold survey released last weekend showed 14 analysts participated. After gold's positive weekly performance last week, Wall Street once again has half leaning bullish: 7 experts, or 50%, expect gold prices to rise this week, only 2, or 14%, believe prices will fall, and the remaining 5, or 36%, said they cannot predict or expect sideways movement. The Kitco online survey received 206 votes. Despite gold's resilient performance, Main Street investors still have not regained a bullish majority: 93 retail traders, or 45%, expect gold prices to rise this week, 77, or 37%, expect a decline, and the remaining 36, or 18%, expect sideways movement. This indicates that professional institutions are slightly optimistic about gold's short-term outlook, but retail sentiment has not formed an overwhelming bullish consensus, and the market remains in a phase of hesitation and waiting for catalysts.
Key Schedule This Week: CPI, PPI, and Fed Chair Speech
This week's inflation data will be the main focus, with the September Consumer Price Index and Producer Price Index due for release. The market will also watch key regional manufacturing surveys and a speech by Fed Chair Kevin Warsh. September existing home sales data will be released on Tuesday. Wednesday focuses on the CPI report. Thursday brings PPI, September retail sales, weekly initial jobless claims, and the Philadelphia Fed and New York Fed manufacturing surveys. Late Thursday local time, or Friday morning Beijing time, traders will focus on Fed Chair Warsh's speech at an International Monetary Fund event in Bangkok. For gold, CPI is the most important short-term variable. If inflation proves stubborn, the market may reinforce expectations of steeper Fed rate hikes, the dollar and Treasury yields may strengthen again, and spot gold could retest the $4,000 psychological support level. If core CPI retreats as Nomura expects, the urgency for consecutive Fed rate hikes diminishes, and gold could hold $4,000 and challenge recent highs. Additionally, Middle East tensions, oil prices, the dollar index, and changes in the Treasury yield curve will jointly determine whether gold can convert last week's rebound into a more sustained rally. Overall, gold is currently in a phase where bullish and bearish factors are highly intertwined. On the bullish side, bargain buying continues to appear near $4,000, official institution net buying expectations remain, Middle East Strait of Hormuz risks are unresolved, European fiscal and political uncertainty, approaching US midterm elections, and elevated consumer inflation expectations all provide potential support for gold. On the bearish side, the possibility of further Fed rate hikes has not been fully ruled out, the high-rate environment weakens the appeal of non-yielding assets, the dollar index has risen for four consecutive weeks, Treasury yields have retreated from highs but remain elevated, Indian gold demand is weak, Chinese trading is light due to holidays, and the physical consumption side has not yet provided strong support. At the technical and psychological level, $4,000 is transforming from a mere psychological threshold into a bottom zone repeatedly tested by the market, but without a "black swan" event or inflation and employment data significantly changing the Fed's path, gold prices will struggle to convincingly break higher. Next, CPI and PPI will provide clues on Fed policy, while the Strait of Hormuz could ignite safe-haven sentiment at any time. Gold's $4,000 defense battle is not over, and the truly big moves may be waiting at the intersection of this week's data and geopolitical news. (Spot gold daily chart, source: Yihuitong) As of 07:31 Beijing time, spot gold is quoted at $4,196.35 per ounce.
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