Gold Holds Near Record with Strong Silver (29 Sep - 03 Oct)

The dollar index dipped slightly to 98.3 on Friday but stayed close to a three-week high, as strong US economic data tempered expectations for aggressive Fed rate cuts. August consumer spending and core PCE inflation came in hot, suggesting persistent inflation pressures despite signs of labor market cooling.

Gold held above $3,750, near record levels, as safe-haven demand remained elevated amid geopolitical tensions and trade risks. However, stronger US data and rising yields slowed its rally. Silver surged past $45, hitting a 14-year high on tight supply and industrial demand.

The 10-year US Treasury yield remained steady at 4.17%, supported by strong spending and labor market data, as well as the Fed's ongoing quantitative tightening.

Market Drivers and Catalysts

• Currencies: Dollar near three-week highs; euro and pound weaken; yen at two-month low
• Commodities: Gold supported by trade tensions; silver hits 14-year high
• Fixed Income: US yields steady on resilient data; gilt yields climb on UK borrowing concerns
• Macro events: US GDP, jobless claims, core PCE; Eurozone and UK CPI; global trade developments
• Macro headlines: Dollar gains on strong US data; trade tensions resurface; central banks diverge on policy outlook

Fixed Income

• US: The 10-year Treasury yield stood at 4.17%, holding gains from earlier in the month as stronger data reduced urgency for deeper Fed cuts. Personal spending, income, and jobless claims all surprised to the upside, reinforcing inflation concerns. Markets still expect an October rate cut, but December odds have declined.
• UK: The 10-year gilt yield climbed to 4.74%, a three-week high, as weak gilt auctions and political borrowing proposals, notably Mayor Andy Burnham’s £40bn housing plan, sparked memories of the 2022 Truss crisis. With UK inflation at 3.8%, BoE rate cut expectations remain mixed.
• Japan: The 10-year JGB yield held around 1.65%, near 17-year highs, after Tokyo's core inflation came in at 2.5%, below forecasts. BoJ minutes and recent dissents suggest possible future hikes. Political uncertainty also looms ahead of the October 4 ruling party leadership vote.
• Germany: The 10-year Bund yield hovered near 2.7%, approaching March highs. While ECB easing appears to be ending, mixed Eurozone economic indicators and escalating US–EU trade tensions (pharmaceutical tariffs, Chinese steel levies) are adding pressure to European bond markets.

Commodities

Gold held above $3,750, near its record high of $3,790, supported by safe-haven flows, central bank demand (notably from China), and rising geopolitical risks. However, stronger US personal income and spending, along with falling jobless claims, momentarily stalled further gains.

Silver surged past $45, its highest since 2011, supported by expectations for lower real rates, tight supply, and robust industrial demand from solar, EV, and electronics sectors. The Silver Institute expects a fifth straight annual deficit of over 100 Moz, despite a slight rise in 2025 supply.

Currencies

• Dollar: The dollar index held firm at 98.3, supported by stronger US spending, income, and inflation data. August core PCE rose 0.2% MoM, keeping the YoY rate at 2.9%, matching expectations. The Fed remains cautious, but robust data has reduced expectations for a December rate cut.
• Euro: The euro fell below $1.17, finishing the month flat. The ECB signaled the end of its easing cycle, while US data resilience and new tariffs on EU pharma weighed on sentiment. Traders now expect fewer ECB cuts, but EU-China trade frictions and stagnant economic indicators add uncertainty.
• Pound: The pound dropped below $1.335, near a seven-week low, amid persistent inflation and fiscal concerns. Proposed heavy borrowing plans further hurt gilt demand. Stronger US data added to dollar strength, compounding sterling’s slide.
• Yen: The yen traded around 150 per dollar, its weakest since late July. Despite Tokyo inflation at 2.5% and signs of BoJ hawkishness, strong US data reinforced dollar strength. BoJ meeting minutes and dissents continue to hint at possible policy tightening ahead.

Macro Calendar Highlights (Times in GMT)

• 12:30 – US Core PCE Price Index (Aug)
• 12:30 – US GDP (Q2, final)
• 12:30 – US Initial Jobless Claims (Weekly)
• 07:00 – UK CPI and Gilt Auction Results
• 09:00 – ECB Watch: Trade and Inflation Developments