Gold drifts higher above $4,200 on surging ETF inflows, markets await US inflation data this week
- Gold price edges higher to around $4,215 in Monday’s early Asian session.
- Inflows into gold-backed ETFs hit a four-year high.
- Traders brace for the key US inflation reports this week for fresh impetus.
Gold price (XAU/USD) gains ground to near $4,215 during the early Asian session on Monday. The precious metal extends the rally amid rising demand for bullion-backed exchange-traded funds and a weaker US Dollar (USD).
Yellow metal receives some support from rising investment demand, with inflows into gold-backed exchange-traded funds reaching a four-year high, according to Bloomberg data. Furthermore, the People’s Bank of China (PBoC) added 740,000 ounces to its reserves in September, extending its buying streak to 23 consecutive months.
Renewed tensions in the Middle East will be closely watched. The Saudi-led coalition said on Sunday that an unidentified projectile hit a passenger terminal at King Khalid International Airport in Riyadh. The Houthis swiftly claimed the attacks, saying they were a response to “Saudi aggression.”
Traders await the release of key US inflation data this week that could offer fresh clues on the Federal Reserve’s (Fed) next interest rate move. The US Consumer Price Index (CPI) report will be published on Wednesday, followed by the Producer Price Index (PPI) and Retail Sales data on Thursday.
Any signs of hotter inflation in the US could reinforce the Fed to raise the interest rate. This, in turn, could boost the Greenback and weigh on the USD-denominated commodity price. Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.
According to the CME FedWatch tool, traders see a 17.7% probability of an October rate hike, but are pricing in an 84.1% chance of an increase in December.
Gold flows build as TD Securities flags CTA short covering and bull run potential
According to strategists at TD Securities, trend-following funds are shifting stance across the precious metals complex, with “CTAs…covering shorts across gold and platinum as strong fundamental backdrop for precious metals insulates the market.” They note that “the yellow metal is gaining on the day with CTAs back on the bid, covering shorts by some 7% of historic max position size,” underscoring how positioning is turning more supportive. In their view, “geopolitical risk, fiscal concern, dollar debasement, de-dollarization and stagflation concerns all remain major supportive factors for these flows in gold,” helping to underpin demand even as traditional macro drivers fluctuate. Against this backdrop, TD Securities argues that “we continue to see the stage being set for the yellow metal to disconnect from real rates further and begin a new bull run into 2027.”
Musalem flags need for more Fed tightening as inflation stays stubborn
Fed’s Musalem delivered a distinctly hawkish message, with a 7.3/10 FXS Speechtracker score essentially unchanged relative to the historical average of 7.2/10, but firmly reinforcing the case for additional policy firming. The emphasis that “more monetary policy firming will be required” to return inflation to 2% in a timely manner, alongside comments that the economy is “pretty strong” and the job market “balanced and stable,” underscores a bias toward further rate hikes even as Musalem claims to enter each meeting with an open mind. Musalem’s focus on persistent demand pressures, anchored market inflation expectations, and structurally higher real yields driven by strong capital demand and fiscal concerns points to a higher-for-longer rate environment that should be supportive of the Dollar on balance.
The FXS Fed Sentiment Index slipped by 0.25 points to 138.33, signaling a modest pullback in perceived hawkishness despite the still-strong tightening rhetoric captured by the FXS Speechtracker. With the index firmly above the 100 neutral line, the Fed remains in clearly hawkish territory, and the slight decline suggests markets are fine-tuning rather than reversing expectations for further rate increases.
Technical Analysis: Gold remains capped under the 100-day SMA
In the daily chart, XAU/USD maintains a mildly bearish near-term bias as it holds beneath the 20-day Bollinger middle band and below a soft resistance zone defined by the upper band. The latest 14-day Relative Strength Index at 47.08 sits just under the neutral 50 mark, hinting at fading upside momentum rather than outright oversold conditions while price stabilizes after the recent pullback.
On the upside, initial resistance aligns with the 20-day Bollinger middle band around $4,225, followed by the upper band near $4,400 if buyers attempt a stronger recovery. On the downside, the broader trend still finds backing from the 100-day simple moving average at about $4,255, and a deeper slide would expose the lower Bollinger band support near $4,055, where dip-buying interest could re-emerge.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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