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HOT INFLATION, LOWER YIELDS — GOLD HOLDS THE LINE
Gold enters the week near $4,165 an ounce, holding up surprisingly well after one of the hottest inflation weeks of the year.
September CPI rose 0.6% month over month and 3.7% year over year, while producer prices jumped 1.3% in September, the largest monthly increase in roughly 4½ years. Normally, that combination would be clearly negative for gold.
Instead, Treasury yields fell late in the week as investors moved toward safety and the dollar weakened. Gold rebounded Thursday and finished Friday close to where it began the week. Reuters
THE FED IS NOT RUSHING TO HIKE
The inflation data increased expectations for another Fed rate increase, but policymakers continue signaling little urgency about moving in October.
Fed officials have acknowledged that inflation remains too high, yet markets still see the October 27–28 meeting as more likely to result in a hold, with December remaining the more plausible window for another hike. Reuters
That matters because the short end of the rate curve is becoming less hostile to gold even while inflation remains elevated.
THE BOND MARKET CHANGED THE STORY
The more surprising move came from Treasuries.
After reaching multi-decade highs earlier this month, the 10-year yield fell toward the low 5% range late last week as investors sought safety amid weakness in technology stocks and concerns about highly leveraged AI infrastructure spending. Reuters
That created an unusual setup:
inflation went up, but bond yields went down.
For gold, lower yields reduce the opportunity cost of holding a non-yielding asset and helped offset the negative impact of the CPI and PPI reports.
The question for this week is whether that bond rally can hold.
OIL REMAINS THE WILD CARD
Brent crude closed Friday near $109.86, its highest level since May, as Middle East supply concerns intensified. Reuters
But early Monday, oil moved lower after the U.S. granted a sanctions waiver that could allow additional Russian fuel supplies into the global market. Brent slipped to about $108.80, while WTI traded near $101.18. Reuters
If oil continues falling, some of the pressure behind recent inflation readings could ease. If crude pushes back above $110, energy inflation quickly returns as a problem for the Fed — and potentially for precious metals.
ETF INVESTORS KEEP BUYING GOLD
One of the strongest structural signals continues to come from gold ETFs.
Global gold-backed ETFs attracted $10 billion in September, lifting third-quarter inflows to a record $31 billion. Holdings increased by 67 tonnes to a record 4,256 tonnes, even though gold fell 8.5% during September. World Gold Council
That divergence remains remarkable.
ETF investors continued accumulating while leveraged futures traders cut exposure sharply. The World Gold Council reported that COMEX managed-money positions declined by the equivalent of 84 tonnes in September. World Gold Council
In other words, longer-term investors were buying while fast money was selling.
SILVER STILL HAS WORK TO DO
Silver has stabilized somewhat after its sharp decline, but the technical damage remains significant.
The key area remains around $60–$61. A sustained move back above that range would improve the picture, while $64–$65 remains the next important resistance zone.
Silver’s longer-term supply fundamentals remain constructive, but the near-term direction is still being dictated by rates, the dollar and broader risk sentiment.
KEY TAKEAWAY
The most important development last week was not the hot inflation data.
It was the bond market’s reaction to it.
CPI and PPI both surprised to the upside, yet Treasury yields fell, the dollar weakened and gold held near $4,165.
If yields continue to retreat while the Fed remains patient, gold could finally get relief from the macro pressure that dominated September.
But oil remains the wildcard.
Hot inflation is still a problem. For now, lower yields are giving gold room to breathe.
Sources: U.S. Bureau of Labor Statistics, Federal Reserve, World Gold Council, Reuters, Global Bullion Tracker.
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For informational purposes only. Nothing in this publication constitutes investment advice.