Gold: up or down?

• 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 four-week trading range.

94% of experts polled by Reuters believe that the Fed will not raise rates in October. At the same time, all experts are confident that rates will be raised by the end of the year. What matters more for gold is the rising share of those betting on two rate hikes in 2027. Whilst 20% of those surveyed held this view in September, the figure was already 41% in 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 barrels per day, 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 oil artery, 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 market. The combination of a slowdown in global economic growth and a possible bursting of the AI bubble could prove a stronger driver for gold than the Fed’s monetary 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