Gold's $4,500 Barrier: A Structural Bull Case Unfolds

Gold's repeated failures to break through $4,500 have raised questions about its potential for further gains. Despite the metal's strong performance in recent months, with a gain of over 10% across the past 30 days and roughly 33% year-over-year, it has struggled to overcome this key resistance level.

The current bull case for gold is getting stronger, however, driven by the collapse in September tightening probability. The CME FedWatch now prices a 69.4% chance that the Federal Reserve will hold interest rates at 3.50%-3.75% next month, with only 30.6% still expecting an increase.

The relationship between gold and interest rates is critical, as the metal pays no interest. A rising policy rate raises the opportunity cost of holding bullion and pulls capital toward Treasury bills. A hold does the opposite, making a rising real-rate environment more conducive to gold's price action.

However, the current market setup is not entirely supportive of higher prices for gold. The 10-year Treasury yield sits at 4.660%, with long yields elevated due to inflation running above the 2% target and deficits widening. This level exists because of buyers demanding compensation for both, rather than Fed policy expectations.