Gold bounces from eight-week low as traders weigh another Fed rate rise

Gold recovered above $4,160 an ounce on Tuesday after touching an eight-week low, as bond yields and oil prices steadied. The rebound came amid continued concern that inflation could prompt further Federal Reserve rate rises, while traders awaited US inflation and jobs figures for clues on the policy outlook.

Key takeaways

  • Bullion rebounded after falling to around $4,140, but remained under pressure from a firm US dollar and elevated yields.
  • Futures markets were pricing in a 70% chance of another Fed rate rise in October and a 58% chance of a further increase in December.
  • US PCE inflation and non-farm payrolls data were the next potential catalysts for gold and currency markets.
  • A higher Shanghai premium offered a sign of Chinese demand, although local trading conditions were mixed.

Rates and inflation remain in focus

The main tension for gold traders is that rising energy prices can stoke inflation and strengthen the case for tighter monetary policy. That can support the dollar and bond yields, raising the opportunity cost of holding gold, which pays no interest. The US 30-year Treasury yield moved above 5.61%, while the more policy-sensitive two-year yield eased to around 4.88% after an earlier decline.

Markets were looking to the US Personal Consumption Expenditures price index and non-farm payrolls report for fresh evidence on inflation and labour-market strength. Softer readings could weaken the dollar and ease pressure on bullion; stronger figures could reinforce expectations of further tightening.

China provides a counterpoint

In Shanghai, gold fell below ¥900 a gram, its lowest level since early August. But the stronger yuan meant the local price traded more than $26 an ounce above London quotes, the widest premium in three months. That gap could improve the incentive to import bullion, though Chinese authorities have also tightened restrictions on retail investors’ leveraged gold derivatives.

Rebound does not yet reverse the technical picture

Gold’s move above $4,160 followed a decline towards $4,100. The market remained below its 100-day moving average, near $4,295, and the Bollinger Bands’ midpoint, around $4,325. The relative strength index was about 40, signalling continued weakness, although selling momentum had eased. Near-term support was identified around $4,165; a sustained break below it could leave prices vulnerable to further declines.

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