Softening Oil Prices Boost Gold as Fed Rate Hike Probability Drops to 16%
nashnova research
Spot gold rose 0.3% Monday to $4,175.60 an ounce, lifted by easing inflation expectations as oil prices slipped; yet traders price only a 16% chance of a hike this month against 92% in December — the rate outlook still looms over bullion.
Oil fell — so why did gold rise?
Oil slid Monday after Trump exempted Russia from sanctions and tariffs, raising expectations of higher Russian fuel exports → downward pressure on crude.
This means → softer oil = markets price in less inflation, and gold — an inflation hedge — catches a bid on that "cooling" narrative.
KCM Trade chief analyst Tim Waterer noted: "A continued fall in oil prices or a notable pullback in yields would be the most constructive catalysts for gold."
No hike this month looks near-certain — but what about December?
The CME FedWatch tool — which tracks the market's probability pricing for Fed rate decisions — shows a mere 16% chance of a hike this month, versus 92% in December.
In plain terms = the market thinks the Fed will almost certainly stand pat now, but will very likely hike in December — giving gold a brief breathing window.
Gold pays no interest. The higher rates go, the greater the opportunity cost of holding it, so a December hike would pressure prices.
Not all inflation signals are gold-friendly — what's working against it?
U.S. September import prices rose more than expected, with energy and broad commodity costs climbing. This reflects inflation pressures that have not fully receded.
The ongoing Middle East conflict threatens energy supply, creating a counterweight for gold — if inflation re-accelerates, rate-hike expectations will follow.
The IMF said Friday the ECB may raise rates by at least another 25 basis points this year; global central banks remain in tightening mode.
Next week's FOMC decision — what is the market waiting for?
The Federal Open Market Committee (FOMC) announces its rate decision next week, alongside PCE price data — the personal-consumption-expenditures index the Fed uses to track its 2% inflation target.
This means → a hotter-than-expected PCE print would push December hike odds even higher, pressuring gold short-term; a cooler print would open upside.
Other precious metals rallied in tandem: silver up 0.9% to $57.54, platinum up 0.7%, palladium up 1.5% — the whole complex benefited from the softer-oil logic.
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