On Tuesday, September 29, the international gold market experienced a dramatic reversal. After crashing nearly 4% on Monday to touch a more than seven-week low, spot gold staged a strong rebound on Tuesday, surging over 1.5% and briefly climbing back above $4,180. On the surface, this looked like a technical correction driven by short covering; but at a deeper level, it was the combined result of falling oil prices, cooling expectations for Fed rate hikes, a pullback in U.S. Treasury yields from their highs, and the ongoing U.S.-Iran negotiation standoff. However, gold remains well below its 100-day moving average of $4,288, rate hike expectations for the year hang overhead like a sword, and U.S.-Iran talks have made only limited progress. Gold bulls may have won a breather, but the moment for celebration is far from here.
In early Asian trading on Wednesday, September 30, spot gold traded in a narrow range, currently hovering around $4,183.85 per ounce. Gold has bounced from a seven-week low — is this a rebound or a true reversal? On Tuesday, spot gold rose 1.6% to close at $4,181.59 per ounce. The intraday low was $4,113.52, slightly above the more than seven-week low of $4,110.61 touched on Monday. U.S. gold futures closed up about 0.3% at a settlement price of $4,179.70. This rebound came after gold plunged nearly 4% in the previous session, its largest single-day drop since June 10, and touched its lowest level since August 5. In other words, Tuesday's gain was more a correction of panic selling than a definitive trend reversal.
Peter Grant, Vice President and Senior Metals Strategist at Zaner Metals, noted: "Tuesday's move was merely a correction of yesterday's decline. I still believe gold faces some fairly significant headwinds." He pointed out that rising expectations for further Fed rate hikes continue to support the dollar, yields remain elevated, and therefore gold's upside potential may be somewhat limited. The market will next closely watch Wednesday's Personal Consumption Expenditures (PCE) inflation data and Friday's employment data. The quality of gold's short-term rebound will be directly tested by these two key data points.
Oil Price Plunge Eases Inflation Concerns, but U.S.-Iran Standoff Remains Uncertain
The first driver behind gold's rebound came from the crude oil market. On Tuesday, Brent crude futures fell $2.69, or 2.6%, to $102.59 per barrel; U.S. crude futures dropped $3.22, or 3.5%, to a settlement of $89.38 per barrel. Although Brent crude was still on track for a monthly gain of about 13% and U.S. crude for about 4%, the day's price decline significantly eased market concerns about energy prices fueling inflation. The U.S. released crude from its Strategic Petroleum Reserve, Saudi Arabia's East-West pipeline resumed operations and loading from the Red Sea port of Yanbu, and Middle Eastern producers' September crude exports rebounded to 16.328 million barrels per day, the highest level since the U.S.-Israel war against Iran broke out in late February. These signs all improved the crude supply outlook, thereby weakening gold's short-term appeal as an inflation hedge, but also indirectly reducing pressure on central banks to maintain high interest rates.
However, the U.S.-Iran situation remains murky. U.S. President Trump denied proposing any conditions to Iran and rejected media reports that he was willing to ease sanctions and unfreeze funds in exchange for concrete Iranian action on its nuclear program. Iranian President Pezeshkian stated that Tehran is prepared to hold negotiations on its nuclear program and other issues, but will not accept "bullying or coercion," emphasizing that Iran does not seek war but will defend itself against pressure, threats, and attacks. Iranian Foreign Minister Araghchi said only a diplomatic path can resolve the conflict, and the proposed agreement would start a seven-day countdown to reopen the Strait of Hormuz and pause regional hostilities. Mediators are renewing efforts to push for a U.S.-Iran deal, with a temporary draft proposing Iran allow free passage of ships through the Strait of Hormuz in exchange for the U.S. lifting its blockade of Iranian ports, potentially followed by restoring oil exemptions, allowing Iran to sell oil, unfreezing some overseas assets, and permitting IAEA inspectors to return to Iran.
But sources poured cold water on the optimism. AXIOS reported, citing three sources familiar with the negotiations, that Qatari mediators tried to push for a diplomatic breakthrough this week but made little progress, with neither side willing to concede. One source said Monday's talks made no significant headway and reached an impasse; Iran raised demands the U.S. could not accept, while the U.S. believed it held the upper hand and saw no need to compromise. U.S. officials even suggested that after the midterm elections, Trump might order a resumption of large-scale military operations. This deadlock means geopolitical risks have not disappeared, and gold's safe-haven buying could be reignited at any time, but in the short term, falling oil prices have cooled the inflation trade, leaving gold caught in a tug-of-war between bulls and bears.
Fed Divided Between Hawks and Doves, October Rate Hike Expectations Plummet
The second key driver behind gold's rebound came from dovish remarks by Fed officials. New York Fed President Williams said on Tuesday that Fed policymakers may only need to raise rates once more this year to push inflation back toward the 2% target. Speaking at the University at Buffalo in Buffalo, New York, he said: "After our policy action at the September meeting, there is no need to rush." He said observing incoming data before deciding the next move "should help provide greater clarity" on economic performance. If the economy broadly evolves in line with his forecast, one more increase in the federal funds rate target range later this year could be appropriate. Financial markets quickly digested this unusually explicit statement. According to the CME FedWatch tool, the market now sees the probability of an October rate hike at 49.6%, down from 68% the previous day; the probability of a December hike fell to 91.5% from 95%. Traders quickly slashed large bets on an October hike, now expecting only one more Fed rate increase this year, most likely at the mid-December policy meeting.
However, the Fed is not monolithic. Governor Barr reiterated on Tuesday that "further policy adjustment" is necessary after high energy prices and strong AI-related demand pushed inflation off its path back to the 2% target. Chicago Fed President Goolsbee said inflation has now been above the 2% target for five and a half consecutive years, which is like playing with fire, and he must see some evidence that inflation is coming down, otherwise by definition it is not transitory. But he also said he is among the more optimistic Fed officials and expects rate cuts will eventually be possible. St. Louis Fed President Musalem, speaking in London, emphasized the importance of central bank policymakers explaining their thinking to the public, saying a central bank that does not explain how or why it makes policy decisions leaves the public guessing, creating an additional uncertainty premium. Fed Chairman Warsh has revealed little about how he believes rates should be adjusted during his first four months as chairman, hoping financial markets will pay less attention to policymakers' remarks and more to economic data. Economists surveyed estimate that by the Fed's preferred gauge, annual inflation will reach 3.7% in August, nearly double the target. Williams expects inflation to be around 3.5% by year-end, with inflation returning to target by 2028 as price pressures ease next year. This delicate balance of "inflation still high but no rush to hike" has given gold a breather, but also limited its upside.
Bond Market and Data: Yields Retreat from Highs, Awaiting PCE and Nonfarm Payrolls
The U.S. Treasury market also provided a rebound window for gold. The rate-sensitive two-year Treasury yield fell on Tuesday after Williams' dovish remarks. The two-year yield dropped 3.51 basis points to 4.889%, having touched 4.9596% intraday, the highest since May 2024. The 10-year Treasury yield rose 1.32 basis points to 5.255%, after earlier hitting 5.2932%, the highest since mid-June 2007. The 30-year bond yield rose 3 basis points to 5.592%, after touching its highest level since June 2002 in early trading. The spread between two-year and 10-year Treasury yields, an economic expectations gauge, currently stands at positive 36.4 basis points. On the economic data front, the Conference Board reported that U.S. consumer confidence fell to its lowest level in more than 12 years in September, dropping 6.7 points to 81.9, the lowest since 2014 and well below economists' expectations of 89.2. Households expect business conditions and the labor market to weaken over the next six months. On the labor market front, August job openings fell to 7.08 million, versus consensus expectations of 7.23 million and 7.34 million in July. ING U.S. Research Head Padhraic Garvey said testing higher levels is currently the path of least resistance, noting that the morning's consumer confidence data was very poor yet yields rose. He pointed to trends of persistently high inflation, central bank rate hikes, and "stunningly high" inflation-adjusted rates. Normally, weak consumer confidence is positive for the bond market, but that was not the case today. The market simply wanted to test the upside, as the reasons driving this move remain obvious. Wednesday will see the release of the final August PCE price index, and Friday will bring the September nonfarm payrolls report. These data will directly influence the Fed's next move and determine whether gold's rebound can continue.
Gold Outlook: Mixed Signals, Inflation and Employment Hold the Key
Taking a comprehensive view, the gold market is currently in a phase of intense collision between bullish and bearish factors. On the bearish side, the dollar has risen close to multi-month highs, supported by oil price volatility and the recent rapid climb in U.S. Treasury yields. A stronger dollar makes dollar-denominated gold more expensive for overseas buyers, while rising Treasury yields increase the opportunity cost of holding non-yielding gold. At the same time, rising energy prices could exacerbate inflation, forcing central banks to keep rates elevated. Gold remains well below its 100-day moving average of $4,288, and rate hike expectations for the year continue to give bulls pause. Although U.S.-Iran talks have restarted, progress has been limited, with neither side willing to concede. If the situation eases, oil prices could fall further, inflation concerns could continue to cool, and gold's safe-haven premium would also be eroded.
On the bullish side, the sharp drop in October rate hike expectations, the pullback in Treasury yields from their highs, and weak consumer confidence and job openings data have all made the market cautious about further tightening bets. If Wednesday's PCE inflation data comes in below expectations, or Friday's nonfarm payrolls report is weak, the market could further lower rate hike probabilities, the dollar and Treasury yields could retreat, and gold could continue to rebound, potentially even challenging the 100-day moving average of $4,288. Conversely, if inflation data once again comes in hot, Fed hawkish expectations could reignite, and gold could retest support near $4,110, or even refresh its more than seven-week low. Peter Grant warned: "I think gold's upside potential may be somewhat limited." Tuesday's gold rebound was a corrective move driven by short covering, falling oil prices, and dovish remarks, but has not yet formed a trend reversal. For investors, the current gold market presents both opportunities and risks, and the most critical thing is to keep a close eye on PCE, nonfarm payrolls, and the latest developments in U.S.-Iran negotiations.
(Spot gold daily chart, source: Yihuitong) As of 07:46 Beijing time, spot gold was quoted at $4,282.92 per ounce.