Gold prices recover after US inflation data, not yet free of bad signals

Gold prices rebounded sharply after the US reported weaker-than-expected inflation, but that was not enough to offset the sell-off this week. Gold ended a nine-week winning streak, a signal that the precious metal needs to fall further before stabilizing.

Gold prices jump after US releases weaker-than-expected CPI

The international gold market closed the week of October 20-24 with the strongest fluctuations in many months. After a record plunge at the beginning of the week, gold prices rebounded in the trading session on October 24 (New York time) thanks to lower-than-expected US inflation figures.

Before the US market opened on October 24, the spot gold price fell to nearly $4,050/ounce (VND 129.2 million/tael). However, immediately after the US Department of Labor announced the September consumer price index (CPI) report, the gold price quickly reversed, soaring back above $4,100/ounce (VND 130.8 million/tael).

The US CPI in September rose just 0.3% month-on-month and 3% year-on-year, according to the report - lower than analysts' forecasts of 0.4% and 3.1%. The core CPI, which excludes food and energy, rose 0.2% month-on-month and 3% year-on-year, both lower than expected. This is a signal that US inflation is slowing, paving the way for the US Federal Reserve (Fed) to cut interest rates at its meeting next week.

As of 10:30 p.m. on October 24 (Vietnam time), the spot gold price increased to 4,130 USD/ounce (131.8 million VND/tael). However, for the whole week, the gold price still lost more than 2% - ending a streak of 9 consecutive weeks of price increases.

The recovery at the end of the week helped the precious metal avoid a deeper decline, but was not enough to reverse the negative trend of the trading week. Previously, on October 21, gold witnessed a terrible drop when it lost nearly 300 USD/ounce (equivalent to -6.2%) in just a few hours, from the historical peak of 4,380 USD to below 4,100 USD.

The main reason comes from a wave of massive profit-taking by investors after gold increased by more than 60% since the beginning of the year. The USD also recovered, reducing the attractiveness of gold.

However, many geopolitical factors continue to support the precious metal from falling below the $4,000/ounce mark. The Russia-Ukraine tension has not yet been resolved as the administration of US President Donald Trump has had difficulty promoting peace talks. Meanwhile, US-China relations remain uncertain, although Mr. Trump is expected to meet Chinese President Xi Jinping during his upcoming trip to Asia.

In addition, US-Canada trade tensions and internal disagreements in Washington amid the temporary government shutdown further increased investors' demand for safe assets.

In Vietnam, gold prices are still hovering near historical peaks: SJC gold bars are selling for around 148-149 million VND/tael, while gold rings in some places hit 153 million VND/tael, showing high demand for shelter.

Cooling down inflation - "good news" for the Fed but not enough to reassure the market

The September CPI figure is considered a “golden report” for the Fed, with most other economic data suspended due to the US government shutdown. This is the last data that Fed officials can consult before their policy meeting next week.

“This CPI report will clearly help the Fed maintain its path of rate cuts,” said Art Hogan, chief strategist at B. Riley Wealth. “The central bank is paying more attention to the weakening employment situation and is willing to defend its full employment target, even if core inflation remains above its 2% target.”

The market is now almost certain the Fed will cut its benchmark interest rate by another 0.25 percentage point, from the current 4%-4.25%. Another cut is likely in December.

However, the monetary policy signals remain unclear, with many experts warning that President Trump’s tariffs could cause inflation to rise again in 2026. However, some financial institutions believe that commodity prices, especially energy, are cooling and could keep inflation in check.

Domestic gold prices hang at record highs. Photo: CH

Many people still fear a return of inflation, but the US economy has proven resilient. With the Fed on an easing path and corporate earnings rising, many markets could continue to rally through the end of the year.

In the commodity market, analysts say energy prices - a major component of the CPI - are likely to cool down due to stable mining output and slowing demand in Europe and China. This helps reduce inflationary pressures in the medium term. However, food and service prices remain high, forcing the Fed to carefully consider the risk of inflation and the goal of job growth.

Fed Chairman Jerome Powell has repeatedly stressed that the Fed’s top priority is to stabilize the labor market. Meanwhile, President Trump has repeatedly pressured the Fed to lower interest rates faster, arguing that “inflation is no longer America’s problem.”

This tug-of-war has investors worried that the Fed could be put in a difficult position: if it cuts interest rates too sharply, the USD risks weakening deeply, and if it is too cautious, growth could slow significantly.

Gold is still out of the risk zone.

Analysts say that despite the positive reaction to inflation data, the gold market still faces the risk of further correction in the short term. Since the beginning of the year, the precious metal has increased by more than 60%, while in 2024 it has increased by 27%. The overheated rally has caused profit-taking pressure to increase sharply whenever there is a lack of supporting information.

“Gold needs to fall one more time before stabilizing,” said independent metals expert Tai Wong. “The recent long rally has left the market fragile. Gold will have to correct to create a more sustainable price base for the next rally.”

However, the medium- to long-term outlook for gold remains positive. If the Fed continues to ease policy and the US dollar weakens, gold could benefit strongly from safe-haven flows. In addition, geopolitical risks, from Russia-Ukraine tensions to instability in the Middle East, remain a “catalyst” supporting precious metal prices.

In short, gold is in a crucial testing phase. Weaker-than-expected inflation data has given the market a breather but is not enough to establish a sustainable uptrend. After a nine-week run of gains, the current correction is necessary for the market to find equilibrium and then possibly enter a new cycle.

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Source: https://vietnamnet.vn/gia-vang-hoi-phuc-sau-so-lieu-lam-phat-chua-thoat-tin-hieu-xau-2456169.html