After the release of softer US inflation data, gold initially rose to around $4,220, but by the morning of October 1 it had fallen to $4,139-4,150. This is a decline of about $80, or roughly 2%, in less than a day. FXStreet notes that the move took gold to roughly seven-week lows.
What happened
The market's first reaction to inflation was a rise in gold. August PCE came in at 3.4% year-on-year versus a forecast of 3.7%, while the core reading was 3.0% versus an expected 3.3%. Weaker inflation reduced expectations of an immediate Fed rate hike and initially supported the metal. However, that momentum quickly faded.
Why gold turned lower
The main factor was US government bond yields. The 10-year yield rose by about 4 basis points to 5.298%, while the 30-year yield rose by almost 5 basis points to 5.642%. One basis point equals 0.01 percentage point. Rising yields make non-yielding gold less attractive relative to bonds. At the same time, high yields and persistent inflation risks due to expensive oil supported the dollar.
Strong GDP also changed the picture
An additional factor was the revision of US second-quarter GDP growth to 2.2% annualized from the previous estimate of 1.5%. Stronger economic growth reduced the effect of the soft PCE: the market received a signal that the economy remains resilient and the Fed can afford to keep policy tight for longer.
Oil added pressure
Oil prices remained high amid the breakdown of talks between the US and Iran. Rising energy prices increase concerns about future inflation and support high bond yields. For gold, this creates additional pressure through a higher cost of money.
What the Fed says
Neel Kashkari took a hawkish stance and allows for another rate hike in 2026 and another in 2027. At the same time, the market estimates the probability of at least one rate hike by the end of the year at above 85%, although the probability of a hike specifically in October after the PCE data declined noticeably.
What's next
The nearest important benchmark for the market is the US September employment report. According to the technical picture, the nearest support for gold is around $4,140, while resistance is around $4,285, where the 100-day moving average runs.
Caught this dump from $4,220?
A move of about $80 in gold in a single session can provide a strong impulse, but at the same time it sharply increases the risk for leveraged positions. The US employment report is due on Friday, and volatility may rise again. In prop trading, it is important to consider not only the market direction, but also the rules of the specific program. In some places, news trading is allowed; in others, trades directly during data releases are restricted. Drawdown limits and available leverage on metals also differ. It is better to check this before buying a challenge, not after violating the account rules.