As markets reprice the Federal Reserve's policy path, pushing up US Treasury yields and real interest rates, combined with a strengthening dollar, gold prices came under pressure. Spot gold last week (September 21 to September 25) failed to hold the psychological $4,300 per ounce level, falling more than 2% for the full week. Despite heightened downside risks, spot gold has overall shown considerable resilience. This week's US economic data could become a key turning point for gold's next move. If US employment and wage data come in weaker than expected, Treasury yields and the dollar may retreat, opening immediate upside room for gold prices; conversely, if the US jobs report proves stronger, it could reinforce dollar strength and continue to suppress gold.
Fed Path Repricing Is the Core Factor Suppressing Gold Prices
As markets increasingly price in expectations that the Federal Reserve will raise rates sooner, US Treasury yields and real interest rates have been pushed higher. At the September Fed rate meeting, Chairman Warsh did not provide detailed forward guidance, instead emphasizing the priority of restoring price stability and once again downplaying the tool value of forward guidance. Markets interpreted his remarks as a hawkish signal, and market pricing was subsequently revised markedly. The CME FedWatch Tool shows that the probability of the Fed raising rates by another 25 basis points in October has now risen to nearly 70%; the probability of another hike in December is approximately 51%, while cumulative rate hike probabilities for January and March next year stand at 72.1% and 57.0% respectively.
The bond market's reaction was more direct. The 10-year US Treasury yield rose to 5.232% at one point last week, the highest since 2007; the 30-year yield briefly touched 5.5319%, a 22-year high not seen since 2004. Meanwhile, the US dollar index rose for a second consecutive week, breaking through 101 again during the week. With US Treasury yields continuing to climb and the dollar strengthening, the opportunity cost of holding non-yielding gold increased, and selling pressure accelerated. However, from a longer-term perspective, whether a yield environment above 5% can be sustained over the long term is questionable. The last time US yields were at such elevated levels, US debt stood at approximately $8.9 trillion, whereas it now exceeds $40 trillion. This means that for every 1 percentage point increase in average borrowing costs, an additional $400 billion in annual interest expenses would be incurred—a level that cannot be sustained long-term in a yield environment above 5%.
Trump Rejects Iran Ceasefire Proposal, Hormuz Reopening Talks Take a Turn
Trump publicly rejected Iran's ceasefire and strait reopening proposal at the White House on Saturday, and has told aides he is considering resuming military strikes against Iran after the November midterm elections. This adds a layer of uncertainty to geopolitical developments this week, with the strait reopening timetable that markets had hoped for being put on pause. Three points need to be watched this week: whether the US side will provide written conditions, whether Iran will make concessions on the nuclear issue, and whether Houthi attacks on Saudi Arabia will further escalate. Trump's consistent demands are that Iran never obtains nuclear weapons and that free passage through the strait be restored; Iran has stated it will not discuss its nuclear program until its conditions are met. Al Jazeera, citing a US official, reported that Washington is in no rush to respond and believes it holds an advantageous position on the waterway issue; the White House's statement is that US officials are engaged in active and constructive dialogue with mediators.
Economic Data Will Be the Key Variable
This week the market will see a series of major reports, including the latest Personal Consumption Expenditures Price Index (PCE), which is expected to continue showing stubborn inflationary pressure; the September nonfarm payrolls report released on Friday will test the resilience of the labor market under current economic conditions. In addition, manufacturing data and private sector employment data will also be in focus. The highlight of the data calendar is Friday's US nonfarm payrolls report. This report contains three core readings—nonfarm payrolls, the unemployment rate, and average hourly earnings—which are directly linked to the Fed's rate path and represent particularly significant employment data ahead of the October FOMC meeting. Market consensus expects 100,000 new jobs in September, down from 162,000 in August; the unemployment rate is expected to remain at 4.1%; and average hourly earnings are expected to rise 0.3% month-over-month. If employment and wage data come in weaker than expected, Treasury yields and the dollar may retreat, opening immediate upside room for gold prices; conversely, if the jobs report proves stronger, it could reinforce dollar strength and continue to suppress gold. Additionally, from a technical perspective, gold prices still face downside risks in the short term, but a key time cycle window lies ahead over the next two weeks. Current short-term support sits in the $4,250-$4,230 per ounce area, with key support in the $4,200-$4,190 per ounce area, while resistance lies in the $4,300-$4,320 per ounce area, with key resistance in the $4,400-$4,420 per ounce area.
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