【TMGM Financial Recap】Hot US September CPI Strengthens Rate Hike Expectations as Gold Continues to Fall, Once Again Targeting the 4,000 Level!

Gold came under renewed pressure on Wednesday, with spot gold falling more than 1% on the day and closing lower for a third consecutive trading session. Prices briefly touched their lowest level since October 7 during the session. The decline reflected the combined impact of unexpectedly strong US inflation data, a rapid shift in Federal Reserve policy expectations, and simultaneous gains in the dollar and US Treasury yields. Gold, traditionally regarded as a safe-haven asset and an inflation hedge, has temporarily lost ground in this round of market dynamics, prompting a reassessment of the factors driving its pricing. 

The release of the US September Consumer Price Index (CPI) was the immediate trigger for the day's decline in gold prices. The data showed that CPI rose 0.6% month-on-month, significantly above August's 0.4% increase. The year-on-year increase reached 3.7%, exceeding market expectations of 3.6%. A sharp rise in gasoline prices was one of the main drivers, with the overall inflation trajectory once again moving away from the Fed's long-term 2% target and showing signs of acceleration rather than cooling. This outcome quickly changed market pricing for monetary policy. Investors' assessment of the probability of an October Fed rate hike briefly rose from around 22% before the release to approximately 42%. The probability of a December rate hike was priced at nearly 93%. If inflation remains stubborn, the Fed will find it difficult to keep rates unchanged, increasing the need for further policy tightening. Gold is highly sensitive to interest rates, as rising real interest rates increase the opportunity cost of holding gold and reduce its appeal. Consequently, stronger rate hike expectations naturally put pressure on gold prices. 

Market participants noted a clear tension between the latest inflation data and the signals of patience recently conveyed by Fed officials. While the data point to a need for further tightening, officials have emphasized the need to assess the effects of the previous rate hike. This divergence has caused market sentiment to fluctuate repeatedly, with gold directly reflecting those swings. 

Remarks from Fed officials became an important factor in the reversal of market sentiment that day. Vice Chair for Supervision Bowman explicitly stated that the Fed has time to observe developments in financial markets and the economy following September's rate hike before deciding whether to take further action. 

Market Insight:
Over a longer horizon, gold continues to face a combination of supporting factors and pressures. On the one hand, global geopolitical uncertainty, balance sheet adjustments by major central banks, and concerns about a potential upward shift in the long-term underlying level of inflation continue to provide fundamental support for gold. On the other hand, if the Fed ultimately chooses to continue raising rates amid high inflation, rising real interest rates will continue to limit gold's upside. Investors need to closely monitor upcoming retail sales, initial jobless claims, the Producer Price Index, and further remarks from Fed officials. These releases and comments will determine the direction of market pricing around the October monetary policy meeting.