Three Central Banks and Inflation Data Set the Course for Gold This Week

The US Federal Reserve is expected to hold interest rates steady in the range of 3.75% to 4.00% in its decision scheduled for October 28, while markets are pricing in a 78% probability of a 25-basis-point rate hike in December, according to an analysis by Investing.com. The analysis notes that current data does not support an immediate rate increase, and that the mid-term elections the following week are prompting the Fed to exercise caution, amid anticipation of statements from Chair Kevin Warsh following the decision.

Third-quarter Gross Domestic Product (GDP) data and core Personal Consumption Expenditures (PCE) inflation are scheduled for release on October 29, which could determine the market's reaction to the Fed's decision. The analysis suggests that a hawkish hold alongside upside surprises in core inflation and GDP could drive the dollar higher and press gold down toward $3,940 and low 2026 levels, while gold futures trade at $4,035.95, up 0.70%.

The European Central Bank will hold its meeting on October 29, where it is unlikely to raise interest rates this month, with December favored as the likely timing for the next move. Headline inflation in the euro area held steady at 3.8%, its highest level in three years, while markets monitor the widening spread between French and German bond yields and concerns over the French budget, awaiting any signals from Christine Lagarde regarding bond markets.

The Bank of Japan is expected to keep interest rates at 1.25%, but it could raise its inflation forecast for fiscal year 2027 as higher oil prices pass through to consumer prices. Japan's core inflation rose to 2.1% year-on-year in September, topping the central bank's target for the first time since December, boosting the likelihood of a rate hike in December. Markets are also monitoring earnings results from Alphabet, Microsoft, and Amazon on October 28 and 29, and what they might reveal about AI spending and returns.

What Do These Terms Mean?

Basis Points: A small unit of measurement for interest rates, where 100 basis points equal 1%. They are used because changes in interest rates are often too small to be measured by a direct percentage.

Core Inflation: A consumer price measure that excludes the more volatile food and energy components; it is used by the Fed to gauge the true trend of inflation.

Futures Contracts: Agreements to buy or sell a commodity at a specified price today with delivery occurring at a later date; they are used for hedging or speculating on prices.