Gold Price Volatility: Last Week's Bounce May Not Be Enough

Last week's gold market saw sharp volatility, with prices swinging by over $100. The US inflation data for August came in above expectations, pushing expectations of a Federal Reserve rate hike to nearly 90%. Despite this, gold prices rose rather than fell at the time, only to sell off sharply on Monday to its lowest level in more than a month.

The market had already sold ahead of the data release, and when core CPI for August came in above expectations on a month-on-month basis, traders' reaction was: 'It is finally confirmed, so there is no need to keep panicking.'

This was a typical, short-lived exhaustion of negative sentiment, not a trend reversal. By Monday, gold had resumed its decline.

Central-bank buying has changed the supply-demand structure, and these purchases are far less sensitive to short-term interest-rate moves than speculative capital. They are driven by reserve diversification and de-dollarisation, rather than the federal funds rate.