Gold Gains as Fed Hike Odds Drop, Central Banks Boost Demand

Gold prices rose by 0.6% to $4,165.49 per ounce on October 5 as the likelihood of a Federal Reserve rate hike in October fell sharply to 18% from 64% a week earlier. The weaker-than-expected jobs report for September, which showed only 29,000 new payrolls compared to the forecasted 84,000, along with downward revisions for July and August, reduced pressure for an immediate rate increase.

Despite the drop in October hike odds, markets still priced a 69% probability of higher rates by December, keeping interest-paying assets competitive with gold. At current spot prices, the modeled spread between gold prices and Q1 2026 all-in sustaining costs (AISC) stands at $2,380 per ounce, about 23% below the Q1 record. Central bank gold purchases reached a second-quarter record of 288.9 tonnes in Q2 2026, offsetting 44.8 tonnes of gold exchange-traded fund (ETF) outflows.

Paul Brink, CEO of Franco-Nevada Corporation, highlighted that central bank buying reinforces gold's role as a strategic reserve asset. Meanwhile, Giovanni Staunovo of UBS noted that rising government debt could further support gold prices. However, the 69% probability of a December rate hike leaves gold vulnerable to further tightening.

Analysts suggest that selecting lower-cost gold producers with stronger margins could offer a contrarian investment opportunity. The base scenario assumes an October hold, a December hike, and unchanged spot gold and AISC, producing a modeled spread of $2,380 per ounce. A recovery to the Q2 average price of $4,506.29 would lift that spread to $2,721 per ounce, about 14% above the base scenario.