Why have inflation data put pressure on gold?

  • The US personal consumption expenditures price index rose 0.5% month over month in September, above the 0.3% increase in August, rekindling inflation concerns; gold fell during US trading hours.
  • Official-sector buying during the Asian trading session had lifted gold prices, but gold failed to break above 4060 dollars per ounce and later fell to support near 4020 dollars. A weaker dollar, slightly lower yields and a retreat in oil prices also failed to support gold; HSBC says this may indicate underlying weakness in the gold price.

Can the 4000-dollar level hold?

  • The report said traders at the time assigned an 80% probability to a Federal Reserve rate hike in December. HSBC believes the hike may already be priced into gold to a large extent, limiting further downside.
  • HSBC expects gold is more likely to trade in a relatively narrow range. Chinese demand is not strong, but it remains stable and can provide some support.
  • Oil prices are a key variable: at the time of the report, Brent and WTI crude were both above 100 dollars per barrel; HSBC believes that if oil prices surge again, gold could fall below 4000 dollars per ounce. Further steepening of the yield curve could also change the range-bound outlook.

Why have silver and platinum-group metals also weakened?

  • Weakness in technology stocks and a retreat in copper prices weighed on silver, which fell below the previous day's low and neared 53 dollars per ounce. HSBC believes higher copper prices, along with healthy demand for silver ETFs and from India, could help silver prices stabilize.
  • Platinum-group metals continued to decline as investors turned into sellers, with palladium nearing support at 1000 dollars per ounce. HSBC's supply-and-demand models show that both platinum and palladium are in deficit, but without the combined support of automotive and investment demand, a short-term rebound remains difficult.