Gold is sitting above a key support zone, an environment that under normal circumstances would send the metal flying. US real yields have fallen sharply (though they remain elevated), the dollar has softened modestly, and the Federal Reserve's pledge to drag inflation back to target is once again being called into question. Yet despite these apparent tailwinds, gold has been unable to muster a meaningful rebound.
Fed Talks the Talk as Hawkish Stance Draws Market Skepticism
While Microsoft's and Alphabet's earnings stole the spotlight in equities, the main event for other asset classes on Wednesday (October 28) was the Fed's October rate decision. The central bank voted 10-2 to hold rates steady, which came as no surprise. Markets had expected a hawkish pause, with Kevin Warsh setting the stage for a December hike. However, while Warsh offered no explicit forward guidance, his remarks raised plenty of questions at a time when inflation pressures remain severe.
Although Warsh acknowledged that inflation is too high, growth is strong, and business investment is expanding rapidly, he repeatedly pointed to improving inflation expectations and market-based inflation compensation measures as evidence that Fed policy is working. With inflation having run above target for more than five years, placing so much confidence in expectations seems a stretch; and market-based gauges are hardly beyond reproach, not least because years of central bank asset purchases and other interventions may have introduced distortions.
Warsh also emphasized that tightening financial conditions are proof that monetary policy is having its intended effect. That argument has merit, but our proxy for tracking the Fed's financial conditions impulse index shows that conditions have only gradually become less accommodative in recent months, far from outright restrictive, with the index at -0.690, still firmly in accommodative territory.
Looking back at the entire press conference, it felt like a return to the old Fed, just with a new chair, repeatedly promising to bring inflation back to target in the future without actually taking action. The decision to cut the number of policy meetings per year starting in 2027 does nothing to ease such concerns either, as it lengthens the gap between actual rate decisions. This may fit Warsh's philosophy of having markets do more of the Fed's work, but only if Fed officials stop appearing as frequently to steer market expectations as they did before this meeting.
Judging by the market reaction to Warsh's press conference, plenty of participants doubt the central bank's commitment to restoring price stability. The US two-year Treasury yield fell sharply, the 2s/10s curve steepened, and the dollar weakened.
Confusing Signals from Fed Officials Persist
After the September hike, markets strongly bet on a follow-up move in October, only for several senior officials to step in and cool those expectations. New York Fed President John Williams reverted to his old dovish posture, saying there was no urgency for another hike; Governor Christopher Waller laid the groundwork for staggering hikes, hinting that not every meeting requires a move. This rendered the September CPI and PPI data, which should have reinforced the market's prior view, almost meaningless for Fed rate pricing, and instead deepened doubts about whether the Fed's words and actions are aligned.
Gold's Traditional Logic Inverts, Moving in Tandem with Treasuries and the Dollar
Gold climbed on Wednesday, extending the previous day's rebound, but the advance lacked conviction. Given historical patterns during similar periods, this is somewhat surprising. The explanation may lie in gold's recent anomalous relationship with the dollar and Treasury yields. In theory, gold, which is priced in dollars and offers no yield, should move inversely to these markets, but recently it has been moving in the same direction, and this positive correlation has become more pronounced over shorter time frames.
Over the past five trading days, gold's daily change has shown a positive correlation of 0.85 with the US ten-year Treasury yield and 0.59 with the dollar index; the yield correlation is not limited to the shortest window, with a 20-day correlation of 0.24 and a 60-day correlation of -0.19. As for the reason, today is October 29, and month-end flows may be at play. There are also murmurs that gold is being sold to cover losses in other asset classes, including Treasury short positions and tech stocks that came under pressure earlier this month. Given that gold has historically been heavily influenced by overall liquidity conditions, one could also argue that currently tight dollar liquidity is preventing a strong rebound, which is worth considering.
Technicals Lean Bearish, Key Support and Resistance Levels Analyzed
Gold once again attracted buyers below $4,000 this week, but it is too early to compare this to earlier in the year or even the August rally. The latest rebound stalled at $4,066.57, the low set on October 7, which is now the most immediate focus on the upside; to the downside, $4,000 per ounce remains the key zone to watch. The technical picture remains clearly bearish, with gold trapped in a downtrend below its medium- and long-term moving averages, all of which are sloping negatively.
Momentum indicators also favor sellers over buyers: the RSI (14) remains below the neutral 50 level and is showing signs of turning lower, while the MACD continues to sit below its signal line in negative territory. For any sustained upside to be taken seriously, the price would need not only to reclaim and hold above $4,066.57 but also to break through the minor downtrend line extending from the early September high. If that happens, gold could target $4,235.30, a level that previously served as support and has now turned into resistance, where heavy sell orders were lurking when gold probed above $4,200 in September and October. Gold has shown little interest in the 100-day simple moving average, which sits roughly in the same area.
The bearish outlook also makes the broader $4,000 to $3,942.55 support zone increasingly important. A break below this area would bring levels such as $3,950, $3,791, and $3,700 into consideration. However, from a medium- to long-term fundamental perspective, if this is the kind of environment the Fed intends to create, then the outlook remains quite favorable for gold and other hard assets with scarcity value, even if the technicals suggest caution in the short term.
Conclusion
The Fed's empty promises have left markets questioning its anti-inflation commitment, while gold's tandem moves with its traditional counterparts look more like ripples from month-end liquidity. The short-term technical picture may look dim, but if the Fed truly intends to create such a world, the long-term case for scarce assets becomes all the more compelling.
Spot gold daily chart Source: Yihuitong. As of 14:59 Beijing time on October 29, spot gold was quoted at $4,033.93 per ounce.
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