Gold traded steadily around $4,160 per ounce on Thursday, even as bullion-backed exchange-traded funds (ETFs) attracted billions of dollars in new investments throughout September. This steady price performance highlights a significant disconnect between strong fund inflows and persistent weakness in gold’s momentum.
ETF inflows remain steady amid price drop
Spot gold hovered at $4,161.67 in Asian trading, following a 6.6% drop in September. This marked gold’s worst monthly decline since June. Despite the fall, US-listed gold ETFs drew $3.8 billion in inflows during September, as reported by MarketWatch. This followed August’s inflows of approximately $7.9 billion, underlining a sustained demand for gold among investors seeking diversification.
Morgan Stanley, a leading global financial services firm based in the United States, highlighted that ETF demand has shown resilience even in the face of Federal Reserve tightening. Amy Gower, head of metals and mining strategy at Morgan Stanley, stated that central banks, particularly in China, have continued to buy gold. Gower suggested that $4,000 an ounce is seen as a key support level.
ETF inflows have persisted despite recent price declines, with central banks—especially in China—providing ongoing support to the market, according to Morgan Stanley’s Amy Gower.
Meanwhile, selling has been more pronounced among algorithmic and momentum-driven funds. Gower observed that these funds increased their gold holdings during August’s price rally but began unwinding positions as technical indicators weakened late in the month.
Inflation data and shifting Fed expectations
US inflation data, released Wednesday, showed the personal consumption expenditures (PCE) price index rising 0.3% in August, coming in below market forecasts. The core PCE, a key indicator for central bankers, advanced by 0.2%. This softer reading prompted traders to lower the likelihood of an October Federal Reserve rate hike to 38%, down from over 70% earlier in the week.
| Metric | August Data | Change |
|---|---|---|
| PCE Inflation | +0.3% | Below forecast |
| Core PCE | +0.2% | Lower than July |
| Probability of Oct Fed Hike | 38% | Down from 70%+ |
Despite softer inflation and reduced expectations for a near-term rate increase, gold prices failed to gain momentum. OCBC Group Research, writing in The Wall Street Journal, described the post-data rebound as “not so convincing,” citing the persistence of high Treasury yields and firm energy prices.
That distinction underscores the market’s shift in focus away from short-term Fed moves towards longer-term bond market trends.
Pressures from bond yields and the dollar
Elevated Treasury yields and the recent strength of the US dollar are posing continued challenges for gold. High yields increase the opportunity cost of holding gold, which pays no interest, while a strong dollar makes the metal more expensive for buyers outside the United States.
Peter Grant, a senior analyst at Zaner Metals, told Reuters that gold faces “significant headwinds” due to these factors, as well as lingering expectations for further Federal Reserve tightening.
Energy prices have added another layer of complexity. Although Brent crude oil prices eased to around $98 per barrel by Thursday, they still rose about 14% over September. Rising oil keeps long-term inflation concerns active, maintaining pressure on bond yields even as hopes for an immediate rate increase have faded.
Gold’s traditional role as an inflation hedge is being tested, as higher long-term Treasury yields are offsetting the benefits of recent inflation uncertainties.
This dynamic leaves investors caught between persistent inflation worries, which usually boost gold, and the impact of elevated yields, which tend to suppress prices.
While long-term investors remain interested in bullion, gold’s ability to break higher may depend on a reversal in bond market trends or clearer signs of easing from central banks.
Mini dictionary: Zaner Metals, a US-based precious metals brokerage and consulting firm, provides market analysis, trading services, and research for metals investors.
