Gold Prices Rebound as Easing Oil Cools Inflation Fears Ahead of Fed Meeting

Gold prices rebounded on Monday, recovering from a significant weekly drop, as a pullback in crude oil prices eased some investor concerns about persistent inflation. The market's attention is now firmly fixed on this week's key interest rate decision from the U.S. Federal Reserve.

By 10:57 a.m. ET (22:57 GMT), spot gold had risen 0.7% to $4,022.18 per ounce, with gold futures tracking a similar 0.7% gain to $4,036.05 per ounce, according to Investing.com data. The move follows a difficult prior week for the precious metal, which saw it fall 4.1% and briefly dip below the $4,000 mark for the first time since mid-July.

Oil Retreats, Easing Rate Hike Fears

The recent pressure on gold has been partly attributed to a sharp rise in oil prices, which stoked fears of energy-driven inflation. However, Brent crude, the international benchmark, edged lower on Monday amid reports of easing tensions in the Middle East. This retreat follows a 6.2% surge last week that marked its highest weekly close since mid-2022.

Higher energy costs can prolong inflationary pressures, potentially forcing central banks to maintain restrictive monetary policies for longer. Sustained high interest rates increase the opportunity cost of holding non-yielding assets like gold, making income-generating investments such as bonds more attractive to investors.

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Fed Decision and Inflation Data in Focus

Markets widely anticipate the Federal Reserve will hold interest rates steady at the conclusion of its meeting on October 28. However, investors will be scrutinizing the central bank's forward guidance for clues on its December policy decision. According to the CME FedWatch Tool, markets are currently pricing in a 78% probability of another rate hike in December.

Analysts at ING noted in a report that they expect the Fed Chair's post-meeting press conference to emphasize that policymakers' work may not be finished. "We expect the message to be: the economy is generally in good shape, unemployment is low, but inflation is still above target. Future policy adjustments will depend on the evolution of subsequent data," the analysts wrote. This outlook is reinforced by recent U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) reports, which both came in higher than expected.

Investors will get another key reading on inflation this week with the release of the Personal Consumption Expenditures (PCE) price index on October 29. The PCE index is the Federal Reserve's preferred measure for tracking inflation.