Gold Rallies Past $4,160 on Fed Hike Doubts and ETF Demand

Gold prices surged above $4,160 this week, defying expectations amid high Treasury yields and a strong dollar. Spot gold rose 0.7% to $4,168.89, while December U.S. futures climbed 1% to $4,196.90. This upward trend persisted despite long-term borrowing costs remaining near multi-decade highs, driven by shifting Federal Reserve expectations and sustained institutional demand.

The shift in sentiment follows a challenging September, when gold dropped 6.6% despite significant inflows into gold-backed ETFs. The immediate catalyst for the recent rally is the reduced likelihood of a Fed rate hike this month. Weaker employment data has lowered the probability of an October hike to 21%, down from 70% earlier, easing pressure on gold.

Record holdings in global physically backed gold ETFs, reaching 4,189 tonnes, along with China’s central bank adding 20.2 tonnes in August, have provided critical support. Central banks are increasingly diversifying into gold, now representing 27% of global official reserves, reducing its traditional inverse relationship with bond yields.

Morgan Stanley identifies $4,000 as a key support level, citing strong physical buying and potential future yield declines. However, risks remain, including persistent inflation and a possible December rate hike, which could revive selling pressure.