Gold Rebounds as Markets Assess Fed Rate Outlook

Gold prices fell toward $4,100 per ounce on Tuesday, marking a third straight session of declines as elevated oil prices heightened inflation concerns and reinforced expectations of tighter monetary policy. The metal also faced pressure from a stronger US dollar and rising bond yields. Oil prices remained firm amid ongoing hostilities in the Middle East and Eastern Europe, while Iran continued to assert its control over the Strait of Hormuz. Meanwhile, the US Federal Reserve is widely expected to keep interest rates unchanged next week, with markets pricing in roughly a 94% probability of a rate hike in December. Elsewhere, the European Central Bank is expected to implement at least one additional 25-basis-point rate increase this year to address persistent inflationary pressures. Bank of Japan Governor Kazuo Ueda also noted that underlying inflation was “quite close” to the central bank’s 2% target, signaling the possibility of further monetary tightening.

Gold prices hovered around $4,150 an ounce on Monday as investors assessed easing oil prices and awaited next week’s Federal Reserve meeting. Oil retreated from a five-month high after US President Donald Trump eased sanctions and tariffs on Russia, raising hopes of increased fuel supplies and easing inflation pressures. Recent US CPI and PPI data showed stronger-than-expected inflation, partly driven by higher gasoline costs. Investors are now awaiting the Fed’s policy decision and US PCE inflation data, the central bank’s preferred inflation gauge. According to CME’s FedWatch Tool, markets see a 15% chance of a rate hike this month, while the probability of a December increase stands at 89%. Elsewhere, the European Central Bank is likely to deliver at least one more 25-basis-point rate hike this year to combat persistent inflationary pressures. While gold is considered an inflation hedge, higher interest rates tend to pressure the non-yielding metal.

Gold climbed above $4,170 an ounce on Monday, extending its recent gains as dovish remarks from Federal Reserve Chair Kevin Warsh prompted traders to scale back expectations of an October rate hike. Speaking at the IMF’s annual meetings in Bangkok on Friday, Warsh avoided signalling the outcome of this month’s FOMC meeting but noted that hotter-than-expected inflation had not changed his assessment of the US economy. The Fed has since entered its blackout period ahead of the October 27–28 policy meeting, with markets pricing in an approximately 84% probability of rates remaining unchanged. Gold also benefited from safe-haven demand as growing concerns over AI-related investments triggered an equity selloff and pushed bond yields lower. Meanwhile, escalating geopolitical tensions in the Middle East and Eastern Europe kept oil prices elevated, while violent protests in France and other European countries added to broader market uncertainty.