London gold closed yesterday down 1.13%, touching a low of $4,005.38, and extended its decline today. During the Tokyo session, it hit an intraday low of $3,996.63, breaking below the key $4,000 mark.
New York futures gold fell 0.45% overnight, touching a low of $4,016, and dipped to an intraday low of $4,006.4 today, still holding the $4,000 level.
Chart 1: New York futures gold trend and futures-spot gold price spread curve (red)
As international gold prices declined, the price advantage of New York futures gold over London spot gold is gradually eroding. As shown in the chart above, on September 22, 2026, futures gold still held a price advantage of about $38 over London gold. Now that advantage has shrunk to just $9.8, and it could even reach parity in the future, which is extremely rare under normal economic conditions.
Chart 2: Core PCE data
The main trigger for gold's decline was the U.S. PCE data. According to figures released yesterday by the U.S. Commerce Department, the U.S. core PCE price index for September came in at 3.1% year-over-year, above the prior reading of 3.0% and in line with expectations. The U.S. PCE price index for September came in at 3.6% year-over-year, above the prior reading of 3.4% and in line with expectations. Both core and headline PCE rising from prior levels means the current interest rate level is insufficient to curb inflation, and the Fed will likely need to raise rates further.
The Fed's October rate decision kept rates unchanged at 3.75%-4.00%, as the Fed had already cut rates once in September and October serves as an observation period. Fed Chair Kevin Warsh said at a press conference that the Fed will undoubtedly achieve price stability and that there is no soft inflation target. These remarks indicate that Kevin Warsh still views the 2% inflation level as the key benchmark, and the probability of a December rate hike has risen significantly.
Chart 3: CME forecast of Fed rate hike probability
Gold's trajectory is highly dependent on Fed rate hike expectations. According to CME forecasts, the probability of a 25-basis-point rate hike in December is as high as 81.3%, up significantly from September. Fed Chair Kevin Warsh is committed to pushing inflation lower, and current high inflation is mainly driven by elevated international oil prices and high domestic refined fuel prices, which are persistent, so the Fed will not change its rate hike path anytime soon. For gold, bearish signals at the monetary policy level will continue to weigh on gains, and downside risk remains elevated.
Trading strategy recommendations:
1. Gold's downtrend is strong; use a moving average strategy to capture trend starting points.
2. Use the RSI oscillator to judge oversold conditions; once the value falls below 20, be wary of a technical rebound.
3. Use the Average True Range (ATR) as the standard for adding positions and setting take-profit and stop-loss levels. For any timeframe, the stop-loss range should not exceed 2 times the ATR value.
ATFX Risk Warning, Disclaimer, and Special Statement:
Markets carry risk; invest with caution. The above content represents the analyst's personal views only and does not constitute any trading recommendation. Do not treat this report as your sole reference. The analyst's views may change over time, and updates will not be separately announced.
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