【TMGM Financial Recap】Weaker Dollar and Falling Treasury Yields Drive Gold Rebound, Focus Turns to Warsh’s Friday Speech!

On Thursday, spot gold rebounded slightly, ending a three-session losing streak. The recovery came as the US Dollar Index retreated and the US 10-year Treasury yield fell to a three-week low. Despite broadly strong US inflation data, market expectations for a Federal Reserve rate hike this month cooled rapidly. This eased the opportunity cost of holding non-yielding gold, becoming the main driver of its price gains.  

The US Producer Price Index for September recorded its largest increase in four and a half years, with both goods and services costs rising, indicating that inflationary pressures are spreading beyond energy into the broader economy. Previously released Consumer Price Index data also showed faster inflation driven by surging gasoline prices, briefly prompting markets to sharply increase their bets on an October Fed rate hike. However, San Francisco Fed President Daly and Fed Vice Chair for Supervision Bowman subsequently struck cautious tones, explicitly indicating that an immediate rate hike might not be necessary. Their comments quickly reversed market sentiment. According to the CME FedWatch tool, investors now see only about a 29% probability of a rate hike later this month, while the probability of rates remaining unchanged has risen to around 73%.  

Markets have largely priced in the possibility of stronger-than-expected PPI data and are beginning to recognize that fiscal conditions impose practical constraints on the Fed. Further substantial rate hikes would place a heavy burden on the economy, making a restrained interest rate path more likely. Rising interest rates would normally increase the opportunity cost of holding non-yielding gold. However, when rate hike expectations cool and Treasury yields decline at the same time, gold’s relative appeal becomes more apparent. Investors are now closely watching Fed Chair Warsh’s speech at the International Monetary Fund’s annual meetings on Friday for further policy clues.  

In sharp contrast to gold’s gains, the dollar retreated. Despite broadly strong inflation and retail sales data, markets shifted their attention to the debt burdens of artificial intelligence-related companies and selling in securities markets. A pullback in technology sectors, including chip stocks, drove funds into US Treasuries in search of safety, pushing bond yields lower. Although retail sales and PPI data were strong, the persistence of the inflation they signal and its drag on economic growth may have been overstated. Meanwhile, slowing AI growth and potential stock market risks provided further support for safe-haven buying.  

If Treasury yields struggle to rise further and dollar rebounds continue to attract selling, this would indicate that markets have largely absorbed the inflation news and that the balance of risks is shifting back in favor of risk assets. Gold, as a traditional safe-haven asset and a hedge against dollar weakness, naturally benefits from these conditions.  

Market Insight:

Investors should closely monitor the Fed Chair’s speech, upcoming inflation and employment data, and geopolitical developments. If the dollar remains under pressure and yields stay low, gold could further consolidate its rebound above $4,100 and potentially test higher levels. Conversely, persistently stronger-than-expected inflation data or more hawkish signals from Fed officials could still trigger short-term pullback pressure.