Gold Tests $4,000 Support as Fed Decision Looms and Real Yields Ease

Gold kicks off the Tuesday session with the Federal Reserve meeting about testing a market facing both persistent inflation and still-positive inflation-adjusted bond returns. The meeting concludes tomorrow, with the announcement scheduled for 2 p.m. Eastern, followed by the all-important 2:30 p.m. press conference.

CME Settlement

The latest CME preliminary October 26 bulletin listed COMEX settlement at $4,038.40 per troy ounce, up a little over $30. This was as the market had tested a major psychological support level in the form of $4,000 and continues to do so as we are getting fresh information at the end of tomorrow’s session.

Real Yields

Real yields also have to be taken into account. The Treasury’s 10-year par real yield was 2.66% on October 26, unchanged from Friday and below the 2.88% on October 13. The chart below includes every business-day observation during that time frame, and it shows easing measured return available from inflation-protected government debt. This decline improves gold’s relative holding-cost backdrop, but gold does not pay interest, so a lower real-yield return on government debt can make bullion comparatively more attractive.

That relationship, of course, is conditional, as investors could prioritize liquidity, currency exposure, or protection from various outcomes over this. Inflation remains central to the distinction at the moment.

September CPI

The September CPI, published on October 14, rose 0.6% month over month on a seasonally adjusted basis and 3.7% over 12 months without adjustment. Core CPI increased 0.3% for the month and 2.6% year over year. Producer prices also have added a little bit of a warning in and of themselves. On October 15, the PPI release showed September final-demand prices rising 1.3% for the month, seasonally adjusted, and 6.3% over the last year. This measure, excluding food, energy, and trade services, rose 0.5% monthly.

Producer-price changes are not necessarily interchangeable with consumer inflation or the Fed’s PCE measure, though. For the gold market, an inflation surprise can pull in opposite directions. Concern about purchasing power could encourage interest in bullion, while expectations of restrictive policy coming out of the Federal Reserve can lift real yields and increase the cost of holding gold.

CFTC

CFTC Futures Only data as of October 20 showed managed-money gold longs of 120,970 contracts and shorts of 16,764, implying a net long of 104,206. This is a calculated balance, not necessarily a measure of total global investment, though. The sizable existing long exposure leaves room for different reactions to the same announcement. A message that validates investors’ outlook could encourage continued holding. A more restrictive message could prompt liquidation even without a deterioration in the gold market’s longer-term appeal. In fact, I find it very compelling from a longer-term standpoint even after the sell-off.

GDP Numbers Incoming

Thursday brings the next major test. BEA schedules advanced third-quarter GDP and September personal income and outlays, including PCE inflation, for October 29 at 8:30 a.m. Eastern. Both remain potential pieces of the puzzle for gold. One place I will be looking is at the growth and inflation details together. Softer spending with easing price pressure would create a different policy discussion from resilient activity alongside persistent inflation.

An unchanged policy setting could still carry new information from the Federal Reserve if officials altered their description of inflation risk or the conditions needed for a later adjustment. Conversely, a change in borrowing costs would not automatically settle the policy path. For gold, the resulting change in real returns and perceived uncertainty matters more.

Right now, I’m watching confirmation across real yields, policy guidance, and subsequent data. A sustained fall in real yields could force gold’s financial appeal to the forefront. A reversal higher could weaken that support, particularly if policy communication keeps financing conditions thought of as being restrictive.

Technical Setup for Gold

From a technical analysis standpoint, it’s pretty obvious that the $4,000 level continues to be a major floor in the market. As we approach that area, any signs of a bounce seem to be appealing for short-term traders. That being said, with the Federal Reserve announcement coming out tomorrow, it’s difficult to get aggressive here, and I will be watching this $4,000 level because by the end of the next couple of sessions, we will be on one side or the other of that major level, and it could point you in the direction we start heading.

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