【TMGM Financial Recap】Three-Week High for Gold Ahead of US CPI: Falling Oil Prices and a Weaker Dollar Fuel Gains as Trump Downplays Further Action Against Iran!

Monday’s global gold rebound saw spot gold rise more than 1.5%. The metal reached a three-week high. Risk sentiment strengthened and oil’s decline gathered pace as Trump downplayed further military action against Iran. A sizeable October addition to China’s central bank gold holdings lent further support. Gold has several near-term tailwinds, but expectations of sustained high interest rates still restrict its gains. Inflation and geopolitical developments remain critical to its prospects. Markets briefly adjusted to last week’s nonfarm payrolls report before returning their focus to forthcoming US inflation releases for guidance on the Federal Reserve’s next interest rate moves.

Monday’s retreat in the US Dollar Index unwound the bulk of Friday’s advance. For overseas buyers, a softer dollar directly cuts the cost of gold priced in dollars, making the metal relatively more attractive. Inflation concerns also eased considerably as international oil prices slumped to their lowest levels since late August.

Elevated energy prices have fuelled inflation expectations since the Iran-related conflict escalated in late February, forcing central banks to hold interest rates high. Those rates put gold at a disadvantage to yield-bearing assets. Oil’s rapid decline now offers temporary relief from that pressure. Gold had already gained approximately 5% last week, supported by hopes of an earlier end to the war with Iran after the Democrats took both chambers of Congress in the midterm elections. Friday’s US nonfarm payrolls report then exceeded expectations, prompting a retreat in gold as markets strengthened their expectations that the Fed could maintain higher rates for longer. By further playing down the need for military action on Monday, Trump gave market sentiment another lift.

Longer-term support for gold also emerged beyond the immediate price swings. An October increase of approximately 25.8 tonnes in China’s central bank gold reserves was reported by the World Gold Council, the largest monthly addition in three years. The figure deserves particular attention. Confidence in the US dollar system is under pressure from post-election policy uncertainty. US Strategic Petroleum Reserve inventories, meanwhile, have declined to 279.5 million barrels, their lowest since October 1982. With that backdrop, continued buying by major central banks signals lasting confidence in gold’s reserve-asset value.

Market Insight: US Inflation in Focus

This week’s US inflation releases remain the priority for markets, notwithstanding gold’s near-term support from geopolitical developments and declining oil prices. Further strength in CPI could bolster expectations of a December Fed rate hike and potentially constrain gold’s gains. Clear indications of cooling inflation would present the opposite scenario: markets could price in a shift towards monetary easing faster, leaving room for gold to rise further.