On Tuesday (October 27), international gold prices rebounded amid volatility, with spot gold ultimately rising about 1% to close at $4,060.13 per ounce, staging a strong recovery after touching a low of $3,989.06 during the session. December-delivery gold futures also settled 0.9% higher at $4,074.60. The core driver behind this move was the notable pullback in crude oil prices. Softer oil prices eased market concerns about inflation to some extent and prompted some investors to reassess the hawkishness of the Federal Reserve's future policy, thereby providing temporary support for gold.
Markets are currently at a critical juncture where multiple threads intersect. Falling oil prices alleviate inflation worries and could moderate the Fed's hawkish stance, thereby supporting gold prices; however, oil prices remain near multi-month highs, and Middle East shipping risks along with Houthi attacks on Saudi Arabia keep supply risks alive. Meanwhile, the Fed is widely expected to hold steady this week, but December rate hike expectations remain elevated, and a rebounding dollar and elevated Treasury yields are weighing on non-yielding gold.
In early Asian trading on Wednesday (October 28), spot gold traded in a narrow range, currently hovering around $4,060 per ounce.
The oil price pullback became the direct catalyst for gold's rebound
On Tuesday, the crude oil market saw a notable correction, with Brent crude futures falling $1.93 to settle at $113.88 per barrel, a decline of 1.67%; U.S. crude oil futures also dropped $1.86 to $99.90. This pullback in oil prices directly eased short-term concerns about imported inflation. Peter Grant, Vice President and Senior Precious Metals Strategist at Zaner Metals, noted that softer oil prices could provide some support for gold because it eases inflation concerns and could somewhat moderate the Fed's hawkish stance.
From a trading logic perspective, there is a complex linkage between gold and crude oil. When oil prices continue to climb, they tend to push up inflation expectations, forcing central banks to maintain or accelerate tightening, which raises the opportunity cost of holding non-yielding gold. When oil prices pull back, this pressure temporarily eases, and gold becomes more attractive to capital. Tuesday's price action was a reflection of this logic.
However, the market is also keenly aware that oil prices remain near multi-month highs, and the risk premium has not truly dissipated.
Uncertain Middle East situation keeps risk premium as a core variable
The reason oil prices struggle to fall significantly lies in the persistence of Middle East geopolitical risks. Although some positive diplomatic signals have recently emerged, substantive progress has been limited. On the Iran side, National Security Council chairman Mohsen Rezaei met with Supreme Leader Mojtaba Khamenei, who emphasized the need to safeguard Iran's interests and insisted on the conditions proposed by Iran to end the war. Meanwhile, the foreign ministers of Iran and Jordan held a phone call, with both sides emphasizing the maintenance of regional peace and stability through diplomacy. Qatar also called on Iran to show goodwill, stop threats against Arab Gulf states, and open the Strait of Hormuz. These statements brought brief expectations of de-escalation, driving oil prices down, gold prices up, and Treasury yields lower.
However, Yemen's Iran-aligned Houthi rebels resumed attacks on Saudi Arabia, leaving the peace outlook still full of uncertainty. Data from a Washington think tank shows that October was the worst month for attacks on commercial vessels in and around the Strait of Hormuz. UBS noted that although ship traffic through the strait has increased, attack incidents have risen in tandem, and risks could further intensify if U.S. Navy support weakens. The market widely believes that current crude oil prices already include a considerable risk premium, reflecting the potential for the U.S. and Israel to launch attacks on Iran in the coming weeks. Analysts at Gelber & Associates also cautioned that although positive diplomatic news has pushed some risk premium lower, continued Houthi attacks and expanding military presence in the Gulf region keep supply risks persistent.
This "neither war nor peace" state means that demand for gold as a safe-haven asset has not faded; it is merely temporarily overshadowed by the positive news of falling oil prices.
Fed meeting in focus, rate path to shape gold's medium-term fate
The market's real attention is highly concentrated on this week's Federal Reserve policy meeting. Policymakers have signaled they will not raise U.S. short-term borrowing costs again this week, but given lingering inflation concerns, investors believe the rate hike pause will not last long. According to the CME FedWatch tool, traders currently estimate the probability of a December U.S. rate hike at 83%. Rising interest rates directly increase the opportunity cost of holding gold.
Currently, U.S. Treasury yields remain broadly elevated, with the 10-year yield fluctuating narrowly below 5% and the two-year yield edging slightly higher. After last week's safe-haven buying driven by the AI sector selloff, trading has become quieter, and investors are cautiously awaiting the Fed's wording signals. If the meeting delivers a hawkish signal emphasizing inflation stickiness and the possibility of further rate hikes, gold could come under renewed pressure. Conversely, if the wording is dovish or emphasizes data dependence, it would help consolidate the recent rebound.
Meanwhile, the U.S. Personal Consumption Expenditures (PCE) data due Thursday is seen by the market as the inflation gauge the Fed watches most closely. This data will directly test the actual impact of falling oil prices on inflation expectations and could serve as an important catalyst for gold's next directional move.
U.S. economic resilience and dollar strength form a counterbalance
At the macro level, U.S. economic data shows some resilience. September core durable goods orders rose 0.5% month-over-month, with shipments jumping 1.2%, indicating that business equipment spending remains strong, driven by the AI investment boom. Economists expect third-quarter business equipment spending to achieve double-digit growth for the third consecutive quarter, with GDP annualized growth potentially reaching around 3.2%. The October consumer confidence index also rebounded, but public dissatisfaction with rising prices remains evident, with the cost of living becoming a core voter concern ahead of the midterm elections.
The dollar index rose to a near one-and-a-half-week high on Tuesday, strengthening slightly against major currencies. Against the backdrop of multiple central banks announcing policy decisions this week, the dollar's relative strength poses some pressure on dollar-denominated gold. Analysts noted that if the Fed keeps rates unchanged and its wording is dovish, the dollar could face downside risks, benefiting gold; if hawkish, the dollar could strengthen further, adding upward resistance for gold.
Notably, analysts have downgraded their 2026 gold price forecasts for a second consecutive quarter, mainly citing persistently high U.S. Treasury yields, a stronger dollar, and market expectations that interest rates will remain elevated for longer. However, most institutions still expect gold prices to recover in 2027, indicating that the medium- to long-term bullish logic has not been entirely negated.
Short-term balance amid mixed signals and medium-term watch points
In summary, Tuesday's gold rebound was more a reflection of technical correction and short-term sentiment boost from falling oil prices rather than confirmation of a trend reversal. Supporting factors include the temporary softening of oil prices easing inflation concerns, lingering safe-haven demand from the Middle East situation, and the Fed's likely decision to hold steady this week. Pressuring factors are concentrated in the continued drag on gold's opportunity cost from the high-rate environment, the dollar's relative strength, and the possibility that oil prices could rise again and reignite inflation expectations.
In the short term, whether gold can hold above the $4,000 mark and extend gains depends crucially on the Fed meeting's wording and Thursday's PCE data. If the data confirms some easing of inflation pressure while the Fed signals greater caution, gold could extend its rebound. Conversely, if inflation stickiness exceeds expectations or the policy stance is hawkish, gold could retest lower support levels.
From a longer perspective, gold's core logic still revolves around "safe-haven value in a high-rate environment" and "geopolitical risk premium." With no substantive de-escalation in the Middle East and the U.S. economy showing resilience but facing simultaneous inflation and cost-of-living pressures, gold's strategic role as a hedging tool in asset allocation remains intact. Investors need to balance short-term volatility with medium-term logic, closely tracking oil prices, Treasury yields, and shifts in Fed communication.
As of 07:47 Beijing time, spot gold was quoted at $4,060.39 per ounce.
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