Gold Slips as ETF Demand Stalls and Rate Uncertainty Grips Markets

Gold ETFs swung to net outflows last week, ending steady inflows since mid-July, as Fed rate jitters and rising Treasury yields pressured bullion.

Physical gold-backed exchange-traded funds swung to net outflows last week for the first time since mid-July, according to World Gold Council data, ending a stretch of steady inflows that had underpinned the metal's demand base. The reversal, reported by Reuters, came with inflows and outflows running nearly neck and neck.

Spot gold traded at $4,129.01 an ounce on Monday, down 0.4% from the prior week's close, though the metal had recovered modestly in early dealings to $4,143.62 as investors weighed the latest US economic signals.

The pullback in ETF holdings reflects a market fixated on the path of Federal Reserve policy. Roughly a month has passed since the US central bank raised its benchmark rate, and gold has shed 6.8% over that stretch, with one measure putting the 30-day decline at 6.5%. Rising yields on US Treasuries and a firmer dollar have compounded the pressure, since non-yielding assets such as bullion traditionally struggle when fixed-income returns climb.

Energy Costs Blunt the Inflation Signal

Oil's advance has complicated the picture. Reuters reported that on September 30, worries about climbing energy prices overshadowed the support that had come from softer US inflation readings earlier in the month. Higher crude prices lifted inflation expectations and hardened the market's view on the Fed's next moves. A more moderate inflation print at the start of the month had briefly dampened bets on a near-term hike, but the surge in Treasury yields and the strong dollar quickly erased that relief.

The result was a seven-week low for the metal at one point, as rate jitters rippled through commodity markets.

Jobs Report Shifts the Calendar

Some respite arrived with a weaker US labor market report. The Bureau of Labor Statistics said just 29,000 jobs were created in September, while the unemployment rate rose to 4.2%. The agency also revised down employment figures for the two prior months by a combined 60,000 positions. According to Reuters, the soft data lent support to gold by reducing the odds of another tightening move in October.

Institutional caution has shown up elsewhere too. Chinese gold premiums retreated to zero ahead of the country's holiday week, a temporary brake on demand in a key Asian market. On the supply side, unions and management at Barrick Mining reached an agreement at the Loulo-Gounkoto complex in Mali, averting planned strikes.

Policy Signals in Focus

Traders now have two dates circled. On October 7, the Federal Reserve publishes the minutes from its September meeting, offering a fuller picture of the rate debate among policymakers. Then on October 14, the Bureau of Labor Statistics releases the September US consumer price index. As the central inflation gauge, that report is likely to shape expectations for how restrictive monetary policy remains through the autumn.