Gold held within a three-week trading range below $4,200 on Monday as markets reduced expectations for a Federal Reserve rate increase later this month while maintaining strong conviction that borrowing costs will rise in December.
Expectations for an October hike fell after Fed Chair Kevin Warsh declined to signal his preference during a conversation with International Monetary Fund Managing Director Kristalina Georgieva in Bangkok on Friday. Warsh said he would not prejudge the Fed’s October or December meetings, and market pricing for an October increase dropped to about 15% from roughly 30% as he spoke.
The shift briefly supported bullion by pulling U.S. Government-bond yields lower and weakening the dollar to a two-week low. Gold nevertheless struggled to extend its gains, with traders still pricing in a probability of about 90% for a December hike. That expectation has kept yields and the dollar-related pressure on the metal in place.
The conflicting rate signals followed a stronger U.S.
Minutes from that meeting indicated that most officials expected another increase would probably be needed this year, while officials have also said they can take time to assess the economy before acting again.
Geopolitical tensions have added support for the dollar and limited gold’s upside. Crude oil reached a nearly one-month high amid supply concerns tied to conflicts in the Middle East and Eastern Europe, reinforcing market concern that energy costs could keep inflation elevated.
Gold’s next clear test is the Fed’s scheduled October 27-28 meeting. In the market’s current range, a sustained move above roughly $4,215-$4,220 would weaken the recent downside bias, while initial support sits near $4,150-$4,145 and then around $4,100.