Gold edged higher Thursday as softer-than-expected August inflation data collapsed October rate-hike odds to 28 percent from 45 percent a day earlier and 69 percent one week back.
Spot gold rose 0.4 percent to $4,171.19 per ounce. December futures gained 0.4 percent to $4,205.10. The move reverses a brutal 6 percent decline in September but faces headwinds from a strengthening dollar and 10-year Treasury yields climbing to their highest level in over two decades—raising the opportunity cost of holding non-yielding bullion.
"It's those lower rate hike expectations that have supported the precious metals markets," said David Meger, director of metals trading at High Ridge Futures. Meger cautioned that any uptick in energy prices or Middle East escalation could flip the script, reigniting Fed tightening bets and pressuring gold.
The inflation report showed August price pressures weaker than forecast, with the prior month also revised lower. That data directly reshaped the Fed's policy path.
But the bond market's signals are mixed. Ten-year yields sit near 20-year highs, compressing the duration premium and signaling that even disinflation cannot fully offset growth concerns or the supply glut of long-dated Treasuries. Oil prices rose Thursday following China's suspension of oil product exports, introducing fresh inflation risk that could resurrect rate-hike talk if energy rallies persist.
Achilleas Georgolopoulos, senior market analyst at XM Trading, said the short-term gold trend remains bearish despite softer rate expectations. A retest of $4,000 is possible, especially if Friday's nonfarm payrolls surprise to the upside and force the Fed to recalibrate its growth assumptions.
Friday's September employment report will be the critical test—a beat could reignite duration fears and cap gold's recovery despite falling rate-hike odds.
HSBC lowered its 2026 gold price target to $4,490 per ounce and its 2027 forecast to $4,825, citing near-term pressure but signaling the metal may be approaching a bottom. The bank expects central banks to resume purchases if prices approach or breach $4,000.
