Gold prices advanced on Thursday as a weaker US dollar and declining Treasury yields supported demand for the precious metal, despite stronger-than-expected US inflation figures that increased expectations of further Federal Reserve interest rate rises.
At 04:41 ET (08:41 GMT), spot gold gained 1.2% to $4,152.51 per ounce, while US gold futures rose 1.6% to $4,173.75 per ounce.
The recovery followed an initial sharp decline on Wednesday after US consumer price data showed inflation accelerating more than economists had anticipated, largely reflecting higher energy costs associated with the conflict involving Iran.
Although the inflation report initially pushed Treasury yields and the dollar higher, both subsequently retreated as investors reassessed the outlook for monetary policy and sought safer investments amid weakness in technology stocks.
US Inflation Data Raises Expectations of Further Fed Rate Increases
Wednesday’s US consumer price report prompted investors to increase expectations that the Federal Reserve could raise interest rates at its next policy meeting on 27–28 October.
The stronger inflation figures reflected continued price pressures, with rising energy costs contributing significantly to the increase.
Following the release, US Treasury yields briefly climbed as bond prices fell, while the dollar strengthened against other major currencies.
Higher interest rates generally create challenges for gold because the metal does not generate interest income, making interest-bearing investments relatively more attractive.
A stronger dollar can also reduce international demand for bullion by increasing its cost for buyers using other currencies.
However, expectations for an immediate rate increase subsequently moderated as financial markets absorbed the inflation figures and broader economic developments.
Analysts at Vital Knowledge noted that investors were pricing in approximately 30 basis points of additional Federal Reserve rate increases over the remainder of 2026, compared with around 25 basis points previously.
The adjustment suggested that markets continued to anticipate tighter monetary policy, although the initial reaction to the inflation report had eased.
Treasury Yield Decline and Weaker Dollar Support Gold
Gold benefited from a reversal in US bond yields as investors moved towards government securities following a sell-off in artificial intelligence-related stocks.
The weakness in technology shares encouraged some market participants to reduce exposure to riskier assets and increase holdings of US Treasury bonds.
Stronger demand for government debt helped push bond prices higher and yields lower, reducing some of the pressure on gold.
The US dollar also weakened, providing additional support to precious metal prices.
At 04:39 ET, the US Dollar Index, which measures the currency against a basket of major international counterparts, declined 0.5% to 102.01.
A weaker dollar generally makes gold less expensive for investors holding other currencies, potentially supporting demand.
The combination of lower Treasury yields and a softer dollar helped bullion recover from the previous session’s initial decline, even as inflation concerns remained prominent.
Chicago Fed President Warns Inflation Pressures Remain Elevated
Federal Reserve policymakers continued to assess whether existing interest rates were sufficiently restrictive to bring inflation back towards the central bank’s 2% target.
Chicago Federal Reserve President Austan Goolsbee described the latest US inflation figures as discouraging and highlighted the potential economic effects of substantial investment in artificial intelligence infrastructure.
Goolsbee suggested that spending on AI-related facilities could be contributing to an overheating economy, adding to inflationary pressures.
He also indicated that it remained too early to determine whether interest rates were high enough to restore inflation to the Fed’s target.
Markets continued to anticipate at least one additional interest rate increase during 2026, reflecting concerns about persistent price pressures.
The outlook for monetary policy remains an important influence on gold, particularly through its effects on government bond yields and the US dollar.
Central Bank Demand and Safe-Haven Buying Remain Important for Gold
Beyond the immediate impact of US inflation and interest rate expectations, investors continued to assess longer-term factors influencing gold demand.
Rick Kanda, managing director of The Gold Bullion Company, identified central bank purchases, currency movements and investor demand for defensive assets as important considerations for the metal’s performance in 2027.
According to Kanda, the outlook will depend partly on whether central banks maintain their recent strong demand for bullion.
The direction of US interest rates and the dollar will also remain significant, given their influence on the relative attractiveness of non-yielding assets.
Investor appetite for safe-haven holdings represents another factor, particularly during periods of financial market volatility and geopolitical uncertainty.
Thursday’s recovery demonstrated gold’s sensitivity to changes in bond yields and currency markets, with lower yields and a weaker dollar offsetting some of the pressure created by expectations of tighter US monetary policy.