To The Moon

On Wednesday, October 21, London spot gold surged overnight before pulling back.

The core factor driving gold's movements lies in shifting rate hike expectations. This week marks the beginning of the quiet period ahead of the October 29 policy meeting, and Federal Reserve officials have made limited public statements. Waller made clear last week that the Fed will no longer pre-announce policy decisions, leaving policy suspense until the very last moment of the meeting. In the short term, gold remains range-bound at low levels.

On the macroeconomic front, in response to turbulence in the French bond market, Bessent said he does not expect France's problems to spill over, but acknowledged observing safe-haven flows into U.S. Treasuries. According to reports, with oil price pass-through exceeding expectations, the Bank of Japan is expected to hold steady at its policy meeting concluding on October 30, with the earliest possible rate hike coming in December.

On the geopolitical front, Qatari media reported on October 20 that Qatar and Pakistan submitted a compromise proposal to the United States and Iran, which received preliminary approval from both sides. Influenced by rumors of a compromise deal between Iran and the United States, oil prices plunged sharply, market risk aversion eased, and stocks, bonds, and gold all rose in tandem. However, Iran subsequently denied that a deal was imminent, and the gains were ultimately given back.

From this perspective, the gold market in the near term remains influenced by fluctuating rate hike expectations. Both from the standpoint of inflation and economic resilience, the signals point to the need for further tightening. However, the probability of the Fed continuing to hike in October is not high. What the market is trading is not an "October hike" but rather pricing in a "high probability of another hike in December." Gold prices are trapped in a narrow trading range defined by "inflation supporting continued rate hikes" on one hand, and "consecutive rate hikes potentially causing economic and financial market turbulence that could constrain further tightening" on the other.

Author: Li Qi. Qualification: F3046227. Trading Advisory Qualification: Z0016145.

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