Gold little changed after 6% September slide as softer U.S. PCE cuts Fed hike bets

Gold prices remained relatively unchanged on Thursday, following a 6% decline in September, due to softer U.S. inflation data dampening expectations for another Federal Reserve rate hike, while high Treasury yields continued to expose the precious metal to additional selling pressure. As of 21:06 ET, XAU/USD was down 0.1% to $4,152.55, with Gold Futures also declining 0.1% to $4,182.80.

XAG/USD held steady at $60.42, while XPT/USD slipped 0.5% to $1,708.72. The U.S. Dollar Index edged up to 101.48. The personal consumption expenditures price index, a key Fed gauge of underlying inflation, rose 0.2% in August, below forecasts, providing markets with some relief regarding the inflation outlook. This data prompted traders to significantly cut expectations for a rate increase at the Fed's October meeting, with the probability of such a move falling to around 34%, from nearly 70% earlier in the week.

Meanwhile, U.S. consumer spending surged in August at its strongest pace in over a year, bolstering confidence that the economy can endure higher interest rates. This resilience helped maintain longer-term Treasury yields near record levels. Despite these factors, gold's vulnerability to renewed selling remains, as elevated bond yields and the lingering risk of tighter monetary policy keep the precious metal exposed to further downside.

Gold experienced its largest monthly drop since June in September, following the Fed's first rate hike since 2023 and indications of potential further tightening. Global bond yields also increased during the month, as worries over rising government debt and fiscal deficits lifted term premiums. Higher yields diminish the incentive to hold gold, which does not yield interest income, thus entering October with softer PCE readings offering some relief, but persistently high long-term yields continuing to restrict the upside.

Investors will now closely monitor Friday's U.S. jobs report for additional insights into the Fed's interest-rate trajectory and the outlook for gold.