Gold prices steadied near $4,160 an ounce even as billions of dollars continued flowing into bullion-backed exchange-traded funds, exposing a divide between investment demand and weak price momentum.
Spot gold was around $4,161.67 in Asian trading after losing 6.6% in September, its worst month since June.
US-listed gold ETFs attracted $3.8 billion during the month, following $7.9 billion in August. The problem is increasingly macro.
Treasury yields remain near multi-decade highs, the dollar is close to a two-month peak and oil’s September surge has kept inflation concerns alive.
ETF buyers are staying while shorter-term money leaves
The contrast between flows and price action suggests long-term investors have not abandoned bullion.
US-listed gold ETFs drew about $3.8 billion in September despite the monthly decline, according to MarketWatch.
That followed around $7.9 billion of inflows in August, pointing to continued demand from investors using gold for diversification.
Morgan Stanley’s head of metals and mining strategy, Amy Gower, told CNBC that ETF demand has remained unusually resilient even as markets anticipated and then experienced Federal Reserve tightening.
Gower also pointed to central-bank buying, particularly from China, and said Morgan Stanley sees $4,000 an ounce as a floor.
The selling pressure appears concentrated elsewhere. Gower said algorithmic and momentum funds that built positions during August’s rally have reversed them as technical signals deteriorated.
Softer Fed expectations are helping but not enough
Normally, Wednesday’s US inflation report should have offered gold more support.
The personal consumption expenditures price index rose 0.3% in August, below expectations, while core PCE increased 0.2%. Traders cut the probability of an October Federal Reserve rate increase to about 38%, from more than 70% earlier in the week.
Gold nevertheless struggled to build momentum.
OCBC Group Research described the rebound as “not so convincing” in comments carried by The Wall Street Journal, arguing that softer inflation alone is insufficient while Treasury yields and energy prices remain elevated.
That distinction matters because gold is responding less to the next Fed meeting and more to what is happening at the long end of the bond market.
The real battle is gold against the bond market
Those conditions attack bullion from two directions.
Higher yields increase the opportunity cost of holding an asset that pays no interest, while a stronger dollar makes gold more expensive for buyers using other currencies.
Peter Grant of Zaner Metals told Reuters there were still “fairly significant headwinds for gold”, citing elevated Treasury yields, dollar strength and expectations for further Fed tightening.
Oil adds another complication. Brent eased to about $98 on Thursday but still gained roughly 14% in September.
That keeps longer-term inflation concerns alive even as expectations for an immediate Fed move have softened.
The paradox is uncomfortable for gold investors. The inflation uncertainty that would normally support bullion is also helping keep long-term bond yields high enough to suppress it.
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