Spot gold edged up 0.2% on Wednesday (October 28), closing at $4,068.96 per ounce, giving the surface impression that bulls held a slight upper hand. However, in early Asian trading on Thursday (October 29), spot gold slipped again to around $4,055, down roughly 0.35%. Caught between the support of a retreating dollar after the Fed stood pat and the pressure of resurgent oil prices, lingering inflation worries, and elevated December rate-hike expectations, the yellow metal finds itself squeezed between two forces, with short-term direction far from clear. Thursday's session will bring US third-quarter GDP data and September PCE data, with market expectations running optimistic, which could weigh on gold before the releases, though investors should also watch for further interpretation of the Fed's decision.
Subtle Signals from the Fed's Decision to Stand Pat
The Fed on Wednesday held its benchmark rate target range at 3.75%-4.00% as widely expected, voting 10-2 to postpone any adjustment to borrowing costs until after next week's US midterm elections and to wait for more data on inflation trends. The dissents came from Fed Governor Cook and Cleveland Fed President Hammack, both of whom advocated a 25-basis-point hike. Cook is facing pressure from President Trump's attempt to remove her, while Hammack has consistently held a hawkish stance, making this "hold" far from unanimous and marked by clear internal divisions. The policy statement itself was not particularly dovish. The Fed acknowledged inflation "remains elevated," while upgrading its assessment of the economy from "moderate" expansion at the September meeting to "strong," citing robust investment and job growth keeping pace with labor force growth. The statement also said that "accumulating more information will help the Committee determine the appropriate policy stance to ensure inflation returns to the Committee's 2% goal in a timely manner," emphasizing that "the Committee will achieve price stability." This wording represents a significant shift from the September meeting and carries a hint of forward guidance, something Fed Chair Warsh had previously said he wanted to avoid. In other words, the Fed is telling the market: the pause is not the end, it is just waiting for data. What truly drove market repricing was Warsh's remarks at the press conference. He offered no guidance on the monetary policy outlook but acknowledged the Fed has not yet achieved price stability and said "we are working on it." He also said he does not favor "pre-judging meeting outcomes," noting that "a lot can happen, so I cannot share my personal thoughts on what will happen when this Committee meets again in six weeks." The market read this combination as slightly neutral-to-dovish, and the dollar index duly fell, providing support for gold. But Warsh gave no commitment to halt rate hikes, and long-end US Treasury yields actually continued to climb, firmly capping gold's upside.
Dollar Weakness Underpins Gold, But Long-End Yields Press Down
The dollar was a key driver behind gold's Wednesday gain. The immediate reaction of the dollar after the Fed decision was relatively muted, but it began to weaken once Warsh started his press conference. The dollar index, which measures the greenback against a basket of six major currencies, fell 0.24% to close at 102.11, having earlier touched 102.48, a nearly two-week high. Marc Chandler, chief market strategist at Bannockburn Global Forex, said the dollar softened relative to pre-FOMC levels due to the steepening yield curve. For gold, a retreating dollar means dollar-denominated gold becomes cheaper for holders of other currencies, providing short-term support. But dollar weakness is not the whole story. Long-end US Treasury yields rose on Wednesday, with the 10-year yield up 4.3 basis points to 5.036% at the close, the highest since last Thursday; the 30-year yield rose 5.8 basis points to 5.363%, also the highest since last Thursday. The two-year yield stood at 4.712%, down 2.5 basis points, having risen earlier in the session before pulling back. The spread between two-year and 10-year yields, widely viewed as an economic expectations indicator, widened to 32 basis points from about 25 basis points late Tuesday. A steepening yield curve shows the market is pricing in slightly cooled near-term rate-hike bets while worrying about long-term inflation and fiscal risks, creating a complex effect on gold: falling short-end rate expectations benefit gold, but rising long-end yields raise the opportunity cost of holding non-yielding gold. Independent precious metals trader Tai Wong captured this awkward situation well. He said long-term US Treasury yields are rising and the market is not entirely satisfied with Warsh's explanation for holding rates steady that day; rising rates will put some pressure on gold. He believes there will not be a major selloff in precious metals, but upside may be limited. That statement is almost a footnote to Wednesday's gold price: dollar weakness held the floor, while long-bond yields capped the ceiling. The 10-year TIPS breakeven rate stood at 2.376%, indicating the market expects average annual inflation of about 2.4% over the next decade; the 5-year TIPS breakeven rate was 2.495%, up from 2.469% on October 27. Inflation expectations are not completely out of control, but they are far from returning to levels that would reassure the Fed.
Oil Prices Regain Momentum, Inflation Worries Become Gold's "Invisible Ceiling"
If the Fed and the dollar are the immediate variables for gold, then oil is the "invisible ceiling" above its head. On Wednesday, following an attack on a Saudi Arabian refinery, concerns about supply risks from Middle East conflict reignited. Brent crude December futures rose $1.44, or 1%, to settle at $115.32 per barrel; US crude futures rose $2.88, or 3%, to settle at $102.78 per barrel. The rally pushed Brent crude back into overbought territory for the fourth time in five sessions. Houthi forces said Tuesday they hit Saudi Arabia's largest refinery with a missile, escalating attacks on the world's second-largest crude producer after the US; Yemeni government forces also said the Houthis attacked Aden airport on Wednesday. Geopolitical risks combined with supply disruptions have made oil once again a core variable in the inflation trade. The impact of higher oil prices on gold is not simply "bullish for inflation hedging." When energy costs are high, especially when key inputs like diesel remain elevated, inflation fears quickly heat up, reinforcing central bank rate-hike expectations. Rising inflation may force central banks to raise rates, which weakens the appeal of non-yielding gold. Kelly Brown, chief executive of deposit management firm Ampersand, said bluntly that "holding rates steady does not mean we can breathe a sigh of relief" — it is the Fed telling ordinary people and businesses to keep waiting; with inflation still at 3.7% and oil above $100 a barrel, companies cannot expect borrowing costs to fall anytime soon. US inflation has failed to reach the Fed's 2% target for five and a half consecutive years, a fact that has some officials worried that businesses and households are gradually getting used to faster price increases and may plan accordingly, making inflation harder to control. Also supporting oil were inventory data. The US Energy Information Administration said Wednesday that energy companies withdrew 1.9 million barrels of crude from inventories in the week to October 23, while analysts had expected a build of 15,000 barrels. Sources said this roughly matched the 2 million-barrel draw reported by the American Petroleum Institute on Tuesday. Separately, three people familiar with the matter said China issued its fourth batch of gasoline, diesel, and jet fuel export quotas for this year, a rare supplementary allocation that brings the total for 2026 in line with 2025. Looking ahead, the market is awaiting an industry meeting on Sunday, with sources saying the OPEC+ producer alliance is expected to keep its December oil output target unchanged. For gold, the stronger oil prices are, the harder inflation worries are to dispel, the higher the bar for the Fed to pivot to easing, and the harder it becomes to fully open gold's upside.
December Rate-Hike Odds Remain High, PCE Data Becomes the Next Flashpoint
After the Fed stood pat, the market did not throw the rate-hike option in the trash. The CME FedWatch tool shows traders now price a 78% probability of a US rate hike in December, down from 88% before the announcement. A December hike remains the mainstream market expectation, with odds at elevated levels. Financial markets are still digesting expectations of two more hikes in coming months, though confidence is slightly lower than before Warsh's Wednesday remarks. Market expectations suggest about an 80% chance the Fed hikes at its December 8-9 meeting, with possibly one more by March next year. This makes Thursday's US personal consumption expenditures inflation data the next flashpoint. Traders are awaiting the PCE inflation data due Thursday for further clarity on the monetary policy path. PCE is the Fed's preferred inflation gauge; if the data comes in stronger than expected, bets on a December hike may heat up again, Treasury yields and the dollar could both find support, and gold would face pressure; if the data misses expectations, gold could get a short-term breather, with dollar weakness and cooling hike expectations reinforcing each other. Meanwhile, the European Central Bank and Bank of Japan are expected to announce monetary policy decisions on Thursday and Friday respectively, with both central banks expected to keep policy rates unchanged. The Reserve Bank of New Zealand unexpectedly held rates steady, sending the New Zealand dollar sharply lower, a reminder that amid diverging global central bank policies, currency fluctuations transmit indirectly to gold through the dollar index.
Institutional Divergence: Limited Short-Term Upside, 2026 Forecasts Cut but 2027 Rebound Seen
From an institutional perspective, gold is not without short-term support, but the cost-benefit of chasing gains is declining. Tai Wong believes precious metals will not see a major selloff, but upside may be limited. Shawn Snyder, economic strategist at Potomac Fund Management, pointed out the contradiction in the Fed statement: the Fed appears to have upgraded its assessment of the economic outlook, describing the pace of activity as "strong" rather than the previous "moderate"; this raises an obvious question — if the economy is so strong and inflation remains stubborn, why not hike now? This doubt itself limits market enthusiasm for going long gold, because as long as the rate-hike option remains on the table, real rate expectations are unlikely to fall sharply enough to benefit gold. Over a longer horizon, analysts have cut 2026 precious metals price forecasts, citing weak demand, higher Treasury yields, and a stronger dollar, though they expect all precious metals to rebound in 2027. This judgment echoes the current picture: in 2026, gold faces the triple constraints of high yields, a strong dollar, and weak demand, making a one-way bull market difficult; but the expected 2027 rebound shows the market has not abandoned gold's long-term allocation value. The problem is that short-term traders focus more on December hike odds, PCE data, and oil prices than on the 2027 outlook. Gold is currently in a state of "long-term story, short-term catalyst shortage."
Conclusion: Bulls and Bears Still Deadlocked, Gold Awaits Inflation Data for Direction
In sum, gold's 0.2% gain to $4,068.96 on Wednesday was the result of dollar weakness and the market reading the Fed as slightly neutral-to-dovish; but the pullback to around $4,055 in early Asian trading Thursday shows bulls do not hold absolute control. The Fed kept rates at 3.75%-4.00%, upgraded its economic assessment, and acknowledged inflation remains elevated; Warsh refused to give forward guidance, and internal divisions became public; the dollar index fell 0.24% to 102.11, underpinning gold; the 10-year Treasury yield rose to around 5.036% and the 30-year to 5.363%, with the steepening curve pressuring gold valuations; Brent crude rose to $115.32 and US crude to $102.78, with the Saudi refinery attack and Yemen conflict reigniting inflation worries; December hike odds remain high at 80% to 86%, and PCE data is the next key variable. Gold is not without support right now — rather, both support and pressure are too strong, leaving prices to seesaw around $4,060. In the short term, gold's upside may be limited, but the probability of a major selloff is also low; the real direction must wait for inflation data and central bank signals to provide a clearer answer. As of 07:57 Beijing time, spot gold was quoted at $4,056.55 per ounce.
Comments