On Tuesday (October 22), in the early Asian trading session, spot gold prices remained around $2722 per ounce after experiencing significant volatility the previous day. On Monday, gold prices surged to a historic high of $2740 per ounce, but then retreated to $2719 per ounce, a decline of about 0.1%, due to rising U.S. Treasury yields and a strengthening dollar. Global markets are weighing a range of macroeconomic and geopolitical factors that collectively drive short-term fluctuations in gold prices.
Strengthening U.S. Bond Market and Dollar Rebound
The yield on the U.S. 10-year Treasury bond soared to a 12-week high on Monday, reflecting investors' confidence in the resilience of the U.S. economy. With recent economic data performing strongly, especially the significantly better-than-expected non-farm employment figures for September, market expectations for future Federal Reserve interest rate cuts have somewhat decreased. In this context, bond yields have risen and the dollar has strengthened accordingly, diminishing the appeal of non-interest-bearing assets like gold.
The trajectory of the Federal Reserve's monetary policy is currently a focal point for global investors. Although the market previously expected the Fed to cut rates by 25 basis points in November, this expectation has fallen from 99% to 85%, with the possibility of no cut increasing from 0% to 13.2%. Recent remarks by Fed officials have further heightened market uncertainty. Dallas Fed President Logan noted that further rate cuts might be necessary in the future, but also emphasized that balance sheet adjustments would not be stalled as a result. Meanwhile, Minneapolis Fed President Kashkari stated that the Fed might "modestly" cut rates over the coming quarters, but did not rule out the possibility of faster cuts should the labor market deteriorate.
Geopolitical Tensions and Limited Safe Haven Demand
Apart from the surge in U.S. Treasury yields, geopolitical conditions are another key factor affecting the gold market. U.S. Secretary of State Blinken traveled to the Middle East again on Monday, attempting to facilitate a ceasefire between Israel and Hamas and restart peace talks, aiming to control the escalation of the Gaza conflict. This conflict has drawn widespread international attention, particularly regarding its potential impact on global energy markets. Uncertainty in the Middle East often prompts investors to lean towards safe-haven assets like gold, but with Blinken's diplomatic efforts and the temporary containment of the Lebanese conflict, demand for gold's safe-haven purchase has somewhat diminished.
Complex Global Economic Outlook and Divergent Market Views
The trajectory of the global macroeconomy is also a significant factor impacting the movement of gold. The forthcoming Global Economic Outlook report from the International Monetary Fund (IMF) will provide new insights for the market. While the U.S. economy is performing well, with labor and consumption data showing some resilience, other major economies around the world face greater challenges. The Eurozone is experiencing slowed economic growth and increased inflationary pressure, leaving the European Central Bank in a dilemma; the Chinese economy also faces internal and external pressures in its recovery process, with persistent policy uncertainty.
In this context, global investors have shown keen interest in the relative advantages of the U.S. economy, also prompting more capital inflows into dollar assets, boosting the dollar exchange rate. However, a stronger dollar exerts pressure on dollar-priced gold, making it more expensive for overseas buyers and consequently reducing demand.
Complex Investor Sentiment and Volatile Gold Price Outlook
As of now, gold prices have surged more than 32% this year, repeatedly reaching new highs. The main drivers for the increase in gold prices include heightened global economic and financial market uncertainty, inflationary pressures, and geopolitical risks. However, with rising U.S. bond yields and a clearer outlook for Federal Reserve monetary policy, market bullish sentiment has slightly cooled. Investors are increasingly concerned about the risk of profit-taking, especially after gold prices have frequently set historical highs, which may increase short-term adjustment pressure.
Additionally, spot silver showed considerable volatility on Monday, slightly retreating after hitting a 12-year high of $31.25 per ounce, finally closing at $33.76 per ounce, with an increase of about 0.17%. Silver investors also need to closely monitor changes in Federal Reserve policy and developments in the global economic situation.
In summary, the gold market is currently influenced by a complex interplay of factors, leaving future trends with considerable uncertainty. Changes in Federal Reserve monetary policy, geopolitical conditions, and the global economic outlook will all have varying degrees of impact on gold prices. Investors should remain cautious, paying attention to upcoming economic data releases and policy changes, particularly the market dynamics ahead of the Federal Reserve's November meeting. As the U.S. presidential election approaches and developments in the Middle East evolve, financial market volatility may persist.
