[Bearish for precious metals]
The Middle East situation has escalated sharply, with Brent crude breaking through $111 to hit a 5-month high, reigniting energy inflation expectations.
This week, the security situation in the Strait of Hormuz and the Gulf has continued to deteriorate: Houthi drones attacked Saudi Aramco's eastern Shaybah oil field; Israel's Channel 12 reported that dozens of Israeli warplanes flew near the Iranian border this week to simulate strikes on Iran, and other reports said the US and Israel have drawn up specific plans for a new round of strikes on Iran; the US ordered some personnel and family members at its embassy in Saudi Arabia to leave, and Iran's Revolutionary Guard said two "violating" tankers hit mines in the Strait of Hormuz, with ship attacks spreading further to waters near Iraq. Driven by supply disruption fears, Brent crude climbed back above $110 on Wednesday and rose further to around $111.3 per barrel on Thursday, while WTI crude approached $99, both near 5-month highs. The market is focused on the secondary impact of rising oil prices on inflation, with high energy prices strengthening the case for the US Fed to maintain restrictive policy.
December rate hike probability climbs, tightening expectations pushed back rather than fading.
The latest data shows the probability of the US Fed holding rates unchanged at its October meeting is 83.9%, with a roughly 16% chance of a 25bp hike; meanwhile, the probability of a cumulative 25bp hike by the December meeting has risen to 76%, and futures pricing indicates a roughly 94% chance of rates moving higher by December. The hot combination of September CPI up 3.7% YoY and PPI up 6.3% YoY has not yet been fully digested, and the renewed rise in oil prices adds further uncertainty to the inflation pullback path, meaning that Waller's remarks brought only a brief "October pause" respite rather than a policy pivot, and the valuation pressure on precious metals has merely been delayed, not removed.
Meta's revenue and guidance both beat expectations, AI capex seen reaching $145 billion, tech stock rally boosts risk appetite.
After the close on October 21, Meta reported Q3 results: Q3 revenue was $64.6 billion, up 26% YoY, a record high and above market expectations of $63.3 billion; Q4 revenue guidance was $73-76 billion, with a midpoint of $74.5 billion above market expectations; the company also raised its 2026 capex guidance range to $135-145 billion, with the lower end raised from $130 billion to $135 billion, as AI infrastructure investment continues to ramp up. After the earnings release, Meta shares surged about 6% in after-hours trading, and with Tesla and IBM also beating expectations, the Nasdaq closed up 1.05% on Wednesday, with AI-related stocks leading the gains across the board, and US equity risk appetite clearly recovering. The strong performance of tech earnings season has reinforced market pricing of US economic resilience and the AI boom, with capital flowing from safe-haven assets to risk assets, exerting some pressure on safe-haven allocation demand for precious metals.
Gold prices repeatedly met resistance at the $4,200 level, with clear technical resistance
Spot gold broke above $4,170 on Monday, boosted by Warsh's dovish remarks, approaching the $4,200 level, but repeated attempts to push higher failed, with clear technical resistance; on Thursday, gold plunged under multiple pressures from surging oil prices, rising expectations for a December rate hike, and recovering risk appetite, once again approaching the low seen after last week's CPI release, as bulls took profits and short-term stop-loss orders flooded out.
[Bullish for precious metals]
Warsh's annual meeting speech declined to prejudge the October outcome and did not turn hawkish on the hotter-than-expected CPI; October rate hike probability declined
Fed Chairman Warsh said during the IMF-World Bank annual meetings in Bangkok that he did not favor revealing possible policy actions ahead of the remaining 2026 FOMC meetings, explicitly declining to prejudge the October rate decision and breaking from the traditional forward guidance model; against the backdrop of September core CPI rising 0.33% MoM, he did not offer a hawkish response to the inflation data. After the speech, market expectations for an October rate hike fell from around 27% to below 15%, the US dollar index hit a two-week low, and gold broke above $4,170/oz on Monday, giving the market a temporary reprieve.
Williams reiterated that "one more rate hike this year and no further action needed in 2027," saying policy is in the right place
On October 20, New York Fed President Williams said in an interview that he maintained the view that "one more rate hike this year may be appropriate," but saw no reason to believe further hikes would be needed in 2027; he also said "the current monetary policy stance is in the right place" and that it was not appropriate to provide specific forward guidance at this time. Although he cautioned that inflation would remain significantly above 3% in the coming months, his overall remarks confirmed that the policy endpoint is approaching, providing bottom support for precious metals on the policy expectations front.
PBOC increased gold holdings for 23 consecutive months and accelerated purchases in September; SPDR holdings rebounded to 1,060 mt, with official and ETF flows jointly underpinning the market
Data showed that gold reserves at end-September stood at 77.47 million ounces, up 740,000 ounces MoM, marking 23 consecutive months of increases and the seventh consecutive month of accelerated purchases; SPDR Gold ETF holdings rose by 1.71 mt to 1,060.18 mt on October 20, with cumulative inflows of about 6.2 mt last week, indicating that dip-buying allocation funds are still entering the market. In addition, US fiscal sustainability concerns and midterm election uncertainty, combined with Middle East geopolitical risks, jointly reinforced gold's safe-haven and asset allocation demand, providing structural support for gold prices.
[Macro summary]
This week, the precious metals market showed a pattern of "retreat after rapid rise, with the dovish rebound reversed by oil prices": on Monday, Warsh's dovish remarks pushed gold above $4,170, approaching the $4,200 level, but as Middle East tensions escalated abruptly and Brent crude topped $111, the market's main narrative shifted from "policy pause expectations" to "energy inflation → December rate hike"; combined with better-than-expected earnings from tech stocks such as Meta boosting risk appetite and capital flowing back into equities, gold plunged on Thursday, largely giving back the rebound since last week and once again approaching the previous low. Macro headwinds regained the upper hand: oil prices hitting a five-month high reinforced inflation stickiness, December rate hike probability climbed, tech earnings from Meta and others boosted risk appetite, the US dollar showed resilience at high levels, and profit-taking occurred ahead of the $4,200 level. Bullish factors, Warsh and Williams' remarks confirmed the policy endpoint is approaching, central bank gold purchases accelerating, and ETF inflows providing bottom support. Going forward, key focus will be on the US Fed's FOMC meeting on October 27-28, the preliminary US October Markit PMI and final University of Michigan consumer sentiment index on October 23, weekly initial jobless claims, developments in the US-Iran situation and the Strait of Hormuz, and progress in the US midterm elections.
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