Gold rebounded above $4,150 an ounce on Thursday, recovering from a one-week low near $4,073 as the dollar and Treasury yields pulled back from their post-CPI peaks. The move offered bullion a quick reprieve from Wednesday's inflation-driven sell-off, with spot gold rising more than 1% to about $4,159 and December futures climbing toward $4,180.
The recovery is notable because the macro threat has not disappeared: US inflation remains hotter than expected and another Federal Reserve increase is still possible. Instead, traders are reassessing whether the CPI surprise requires an immediate hike, shifting the focus from inflation itself to the bond market's reaction.
Why gold is rebounding despite hotter inflation
Wednesday's CPI shock initially produced the textbook bearish setup for gold: a stronger dollar, higher Treasury yields and a jump in Fed-hike expectations. By Thursday, much of that move had started to unwind. The dollar index slipped from an 18-month high and the 10-year Treasury yield fell towards 5.09%, helping reduce the opportunity cost of holding non-yielding bullion.
FXStreet analyst Dhwani Mehta also linked part of the bond rally to reports that China may be accumulating Treasuries through overseas custodians, adding another source of demand for US debt. Mehta said the yield retreat helped accelerate gold's recovery above $4,150.
That leaves gold trading the rates response rather than the inflation headline. If yields continue to ease, the rebound has room to extend. If they reverse higher, bullion could quickly lose that support.
Fed officials take some urgency out of the hike trade
The other shift is in policy expectations. After the CPI release, the probability of an October rate increase briefly surged, but it has since fallen back towards roughly a quarter as Fed officials argued for patience. San Francisco Fed President Mary Daly indicated that more tightening may ultimately be necessary but did not signal urgency for the October meeting. Vice Chair Michelle Bowman has also favoured waiting for more evidence before acting.
That makes Thursday's producer-price and retail-sales data the next test, followed by Fed Chair Kevin Warsh's IMF appearance in Bangkok on Friday. TD Securities strategist Ryan McKay told Kitco that systematic selling remains a drag on gold, but said ETF inflows, central-bank demand and discretionary positioning should provide meaningful support around $4,000-$4,100.
The $4,000 floor has survived, but $4,200 remains the hurdle
Thursday's rebound does not mean the correction is over. Gold has repeatedly struggled around $4,200, while FXStreet sees further technical resistance around the low-$4,200 area. A sustained break through that zone would strengthen the case that Wednesday's sell-off has largely been absorbed.
The downside is clearer. TD Securities sees $4,000-$4,100 as an important support region because structural demand remains firm. Jefferies still forecasts gold at $5,000 in 2027, arguing that the US may struggle to tolerate materially higher yields indefinitely.
This article is for informational purposes only and does not constitute financial advice.
