【TMGM Financial Recap】Inflation Cooling Cannot Withstand the Energy Storm, Gold Prices Plunged 6.6% in September, Bull Market Comes to an End!

In the just-concluded September, the global gold market did not ride the tailwind of the Fed's policy shift as many investors had expected, but instead ended with a clear decline. Spot gold rebounded on Wednesday and closed slightly lower, with a cumulative monthly drop of 6.6%. Meanwhile, the continued rise in energy prices, deadlock in US-Iran negotiations, and the complex interplay of US economic data have all shaped gold's current awkward situation. On the surface, lower-than-expected inflation data should have provided solid support for gold prices, but in reality, rising energy costs have outweighed this positive factor, putting gold under renewed pressure. 

The U.S. Department of Commerce's August Personal Consumption Expenditures (PCE) price index released on Wednesday should have been a shot in the arm for gold. Data shows that PCE rose 0.3% month-on-month in August, below the market's previous expectation of 0.4%, while the July data was revised down to 0.1%. The year-on-year increase in core PCE remained at 3.0%, a revision from previous reports. These figures indicate that inflationary pressures in the U.S. have eased somewhat in the short term, at least not as bad as the market feared.

This result directly impacted market expectations for the Fed's policy path. CME FedWatch tools show that financial markets currently believe the probability of a Fed rate hike in October has dropped to about 38%, far below pre-data levels. The New York Fed President has previously publicly stated that the urgency for further action is not high. In theory, a cooling interest rate expectation should be positive for gold, as lower rates reduce the opportunity cost of holding non-yielding assets and weaken the dollar's appeal. However, gold prices surged and then fell after the data release, ultimately closing slightly lower. Although the likelihood of a rate hike in October dropped sharply after core PCE came in below expectations, rising energy prices are quietly rewriting the inflation narrative. As oil prices continue to climb due to deadlock in US-Iran negotiations, the market is beginning to worry that inflation may resurface due to rising energy costs, forcing further monetary tightening. This concern about sticky inflation overshadowed the short-term optimism brought by the monthly data. 

More notably, the strong performance of consumer spending has left the Federal Reserve room to remain cautious or even act again. Consumer spending surged 0.9% in August and still grew 0.6% after adjusting for inflation, demonstrating the resilience of the U.S. economy far beyond expectations. The coexistence of economic strength and ongoing price pressures makes it difficult for gold to benefit solely from rate cut expectations.

Market Insight:

Looking ahead, gold still stands at a critical crossroads. If the U.S.-Iran negotiations achieve a substantial breakthrough and oil prices fall significantly, inflation expectations are expected to cool further, and gold prices may find support again. Conversely, if energy tightness persists and economic data shows resilience, the likelihood of the Federal Reserve acting again before year-end will increase, while gold may face a longer period of adjustment.