Gold bounced back on Tuesday, gaining more than 1.3% to trade near $4,170 after touching a multi-week low around $4,110 the previous day. The recovery came even as several Federal Reserve officials maintained a hawkish stance on interest rates, with the rally driven primarily by a sharp decline in energy prices.
West Texas Intermediate crude, the US oil benchmark, fell 4.27% to $89.10 a barrel, easing one of the key sources of inflationary pressure. Although the US dollar strengthened and Treasury yields edged higher, the drop in oil prices provided enough support to lift gold.
Oil rout underpins gold's recovery
The collapse in oil prices was the main catalyst for gold's rebound. Lower energy costs reduce input costs across the economy and dampen inflation expectations, which tends to benefit gold as a store of value. The US Dollar Index rose 0.20% to 101.37, and the 10-year Treasury yield increased by two basis points to 5.255%, near levels last seen in 2004. Normally, a stronger dollar and higher yields weigh on gold, but the oil-driven shift in inflation outlook proved more influential.
Fed voices remain divided
Federal Reserve officials offered contrasting views on the path of monetary policy. New York Fed President John Williams struck a relatively dovish tone, saying the central bank is "in no rush to raise rates" and describing price stability as "foundational for the economy". He added that inflation should ease as the shocks that caused it have "largely played out".
Other officials were more hawkish. St. Louis Fed President Alberto Musalem said policy is "still accommodative", implying further tightening may be needed. Chicago Fed President Austan Goolsbee warned that "persistent inflation is like playing with fire". Governor Michael Barr was the most direct, stating that policy needs "recalibration" and further rate increases.
Economic data adds to the picture
Consumer confidence deteriorated in September, according to the Conference Board. Chief economist Dana Peterson noted that references to prices, the high cost of goods and services, and oil and gas prices in particular, rose to new heights. The Job Openings and Labor Turnover Survey for August showed a decline in job openings from 7.335 million to 7.079 million, while layoffs remained low. This low-hiring, low-firing scenario suggests the labour market could withstand additional tightening by the Federal Reserve.
Money markets currently see a 68% probability of a rate hike in October and a 95% chance of an increase in December, according to Prime Terminal data. Traders are now focused on Wednesday's data releases, including the ADP National Employment Change, the Core Personal Consumption Expenditures Price Index, third-quarter GDP figures, and September's nonfarm payrolls.
Technical outlook for gold
After bottoming near $4,100, gold is testing the bottom trendline of a so-called 'bullish wedge'. If it clears this level, the door could open to reclaim $4,200. However, momentum remains tilted to the downside: the Relative Strength Index is below its 50-neutral level, indicating that the path of least resistance is lower. The first support is the September 28 swing low of $4,110, followed by $4,100, the psychological $4,000 mark, the July 29 low of $3,996, and the yearly low of $3,941. For the latest price, visit the live gold price page.
Key takeaways
- Gold rose over 1.3% on Tuesday, recovering from a multi-week low near $4,110 to trade at $4,170.
- A 4.27% drop in West Texas Intermediate crude to $89.10 a barrel eased inflation concerns, supporting gold despite a stronger dollar.
- Federal Reserve officials were divided: John Williams adopted a dovish tone, while Michael Barr, Austan Goolsbee and Alberto Musalem called for tighter policy.
- Money markets price a 68% probability of a Fed rate hike in October and a 95% chance in December.
Common questions
Why did gold rise even though the US dollar strengthened?
Gold typically moves inversely to the dollar, but on Tuesday the sharp fall in oil prices outweighed the dollar's strength. Lower energy costs eased inflation fears, which supported gold as a hedge against rising prices.
What did Federal Reserve officials say about interest rates?
New York Fed President John Williams said the Fed is in no rush to raise rates and that inflation should ease as shocks have largely played out. However, St. Louis Fed's Alberto Musalem said policy is still accommodative, Chicago Fed's Austan Goolsbee warned that persistent inflation is like playing with fire, and Governor Michael Barr called for recalibration and further rate increases.
What are the key support levels for gold?
After bouncing from $4,110, gold's first support is that level. Below that, $4,100, then the psychological $4,000 mark. The next support is $3,996 (the July 29 low of the day), followed by the yearly low of $3,941.
What economic data influenced the gold price?
The Conference Board reported that consumer confidence deteriorated in September, with anxiety about high living costs and gasoline prices. The Job Openings and Labor Turnover Survey showed a decline in job openings to 7.079 million, while layoffs remained low, indicating a low-hiring, low-firing labour market that could withstand further Fed tightening.
Gold's recovery on Tuesday highlights how shifting inflation expectations, driven by energy costs, can outweigh traditional headwinds such as a stronger dollar and higher bond yields. With the Fed's next move still uncertain and key data releases ahead, the yellow metal remains sensitive to both policy signals and economic releases.