The market had already written off gold under the weight of a second consecutive Fed rate hike. The precious metal plunged to its lowest level since early August as investors were convinced monetary policy would tighten further. Then FOMC member John Williams spoke, and gold sprang back to life.

The New York Fed president said inflation remains too high and a federal funds rate hike later this year could be appropriate. But there's no need to rush: after the September decision, the Federal Reserve has time to study new data. Before his comments, the futures market had priced in the probability of a tightening in October at over 70%. After the speech, the odds fell to 46%, the US dollar and bond yields eased, and XAU/USD took advantage of the pause.

Gold reacts to Fed rate expectations and policymakers' remarks

Gold is highly sensitive to shifts in Fed-rate expectations and Fed officials' statements. Strong economic data and hawkish comments had crushed XAU/USD, while John Williams' softer tone gave the metal back some footing.

Just a week ago, the outlook for gold looked dire. Oil was approaching $110 per barrel, real yields were rising, and the market priced in about +100 bps of Fed tightening over the coming year. Since then, some of that pressure has subsided: oil retreated below $100/bbl, and the energy component of inflation fears has eased materially.

In September, gold lost roughly 7% after the Fed's first rate rise since 2023 and its signal that further hikes were possible. The metal's weakness reflected rising Treasury yields, a strong dollar, and technical selling after a key support break, amplified by profit-taking from Chinese investors ahead of Golden Week.

ETF flows vs. price

Not everyone, however, believed the bearish scenario. Gold ETF holdings actually increased by about 63 tonnes over the month despite the ongoing rise in real yields. Macquarie Group attributes this to demand from long-term investors and central banks, which offset part of the negative forces and left gold without a clear directional catalyst.

The divergence between inflows to specialized ETFs and XAU/USD quotes shows persistent interest in the metal amid US economic cooling. Consumer confidence has fallen to its lowest since 2014, job openings are declining, and the Treasury yield curve is edging toward inversion—historically a recession warning.

Conclusion

In short, gold is supported by falling odds of an October Fed hike and early signs of US economic slowdown. Offsetting pressure comes from higher bond yields and a strong US dollar.

Technically, the daily chart showed a support break at $4,250/oz, which opened space for short positions. If bulls can reclaim the inside bar, a successful test of $4,200 would prompt profit-taking by short positions and could turn the market back into buying.