$4500 Ceiling Remains Intact Despite Weakening Rate Hike Odds

Gold has been struggling to break through the $4,500 level, but despite this, the structural bull case for gold is getting stronger. The metal has been building higher lows since June while failing at progressively similar highs, a compression pattern that resolves violently once the trapped supply clears.

The collapse in September tightening probability from 50% to 30.6% in a month has also contributed to the strengthening of the bull case. A rising policy rate raises the opportunity cost of holding gold, but with a lower chance of an increase, investors are more likely to hold onto their bullion.

The current inflation rate of 3.4% and decelerating growth do not support the metal, but it's the in-between state that's hurting gold, neither stagflation nor disinflation-with-slowdown is supporting it. The real 10-year Treasury yield sits near 1.26%, positive rates being a historical enemy of non-yielding assets like gold.

The dollar index has softened enough to give gold room, but until the DXY breaks below 99 or nominal yields drop, the ceiling on this rally stays where it is, at around $4,500.