FxPro: Gold: up or down?

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Gold is under pressure due to high oil prices and expectations of a Fed rate rise.
The slowdown in the global economy may provide support in the long term.

Gold is on track to close lower for the fourth day in a row, despite a weakening US dollar and falling Treasury yields. At first glance, this combination creates a tailwind for precious metals; however, markets rise or fall on expectations. In recent days, traders have been raising their expectations of a more aggressive Fed policy in the coming quarters due to high oil prices, which is pushing the price towards the lower end of the trading range seen over the last four weeks.

94% of experts polled by Reuters believe that the Federal Reserve will not raise rates in October. However, all experts are confident that a hike will happen by the end of the year. For gold, what is more important is the rise in the proportion of those betting on two rate rises in 2027. Whilst 20% of those surveyed held this view in September, the figure had risen to 41% by October.

One of the main reasons is the more than 12% rise in Brent prices over the past month, despite an increase in oil exports from the Middle East to 24 million barrels per day, according to Kpler. This is higher than the 23.3 million barrels per day recorded in late February, before the conflict began. Some 14 million bpd, or 82% of pre-war levels, pass through the Strait of Hormuz. Around 40% of the region’s oil flows are bypassing the world’s main shipping route, compared with 17% before early March.

Nevertheless, Brent is holding steady at around $105 per barrel, ignoring diplomatic efforts by mediators to bring the US and Iran back to the negotiating table. The longer oil prices remain high, the greater the risk of them feeding into core inflation, which will force the Fed to adopt a more hawkish stance next year. And that is bad news for gold.

However, the higher the federal funds rate and Treasury bond yields go, the greater the risk of turmoil in the equity markets. The combination of a slowdown in global economic growth and the bursting of the AI bubble could prove a stronger factor for gold than the Fed’s monetary policy tightening. Even more so because, in such circumstances, central banks usually shift their focus from inflationary risks to sustaining growth. Or, simply put, they cut interest rates.

The FxPro Analyst Team

Summary: Gold is under pressure, as high oil prices are fuelling expectations of a hawkish stance from the Fed. However, the economic slowdown and the risk of a market correction may ultimately provide support for the metal.
Fig. 1. Gold and the Fed’s key interest rate.
Fig. 2. Long-term trends in oil and gold prices.