1. Core Theme: US Inflation and Employment Data Reshape Fed Rate Expectations. Gold Sees Rally on Bullish Factors Followed by Sharp Pullback

On the evening of October 2 (Beijing Time), the US Bureau of Labor Statistics released the key September non-farm payrolls data, which became the most important macro trigger for the foreign exchange and gold markets recently. The data showed that the US added only 29,000 new non-farm jobs in September, far below the market consensus forecast of 90,000. The unemployment rate rose from 4.1% in August to 4.2%, sending clear signals of a cooling labour market. Meanwhile, authorities revised down employment figures for the prior two months: July’s new payrolls were cut from 21,000 to a loss of 10,000, while August’s reading was lowered from 162,000 to 133,000. The cumulative downward revision over two months totalled 60,000, visibly weakening the resilience of America’s labour market. Wage data also softened alongside; average hourly earnings in the private sector rose 0.1% month-on-month and 3.0% year-on-year in September, easing endogenous inflation pressure stemming from wage growth.
 

Global markets reacted instantly upon the data release. According to the CME FedWatch Tool, market odds of a 25-basis-point rate hike at the Fed’s October FOMC meeting tumbled rapidly, falling from nearly 70% before the data print to a low of 22%. Probabilities of the Fed holding rates steady in October climbed to 80%. As rate hike expectations faded, the US Dollar Index dipped briefly. Spot gold in London staged an impulsive rally, surging to $4,226.51 per troy ounce at its peak, up more than 1% and briefly breaking above the key $4,200 psychological level. Nevertheless, this bull run lacked durability. After the brief spike, capital rushed to take profit, long-dated US Treasury yields rebounded once again, and gold gradually erased all its gains. At the close on October 2, London spot gold settled at $4,142.75 per ounce, down 0.84% on the day. COMEX gold futures closed at $4,172.1 per ounce, a 0.72% decline. Over the latest full trading week, international gold prices fell roughly 3.4% in total; COMEX gold futures posted a weekly loss of 3.59%. Precious metals faced pronounced selling pressure. Silver suffered an even larger weekly drop of about 6.7%, with fierce battles between bulls and bears.
 

Earlier, the US Department of Commerce released the August core PCE price index, the inflation gauge most closely watched by the Federal Reserve. The August core PCE rose 3.0% year-on-year, below the market forecast of 3.3%. Headline PCE also rose 3.4% year-on-year, also undershooting estimates. Annualized core PCE has fallen to 2% for three consecutive months, hitting the Fed’s long-run inflation target. This temporarily fuelled market optimism about sustained inflation cooling, similarly weighing on near-term rate hike expectations and supporting a gold rebound. However, markets quickly regained composure. Investors began to distinguish between “single-month data volatility” and “a full reversal in inflation trends”. Multiple presidents of the Fed’s regional banks subsequently delivered hawkish remarks, directly capping gold’s upside potential. Cleveland Fed President Beth Hammack stated publicly that US inflation has remained above the policy target for years, the current intensity of monetary tightening remains insufficient, and options for further tightening remain on the table. She warned markets against prematurely pricing in rate cut expectations. This commentary dampened the rebound momentum of precious metals and underpinned the US dollar.
 

2. Foreign Exchange Market: US Dollar Index Oscillates at High Levels; Major Non-US Currencies Face Pressure. Long-Dated US Treasury Yields Act as the Core Anchor for Exchange Rates

The underlying logic in today’s foreign exchange market is no longer driven solely by short-term policy rate expectations; instead, long-term US Treasury yields have taken on a dominant role. While September non-farm payroll and PCE data reduced the odds of an October rate hike, markets have not fully ruled out the possibility of another hike in December. Trading participants still price in a potential additional Fed rate increase in December. Persistent large US fiscal deficits, expanding Treasury issuance volumes, coupled with upside risks to energy prices, have kept the 10-year US Treasury yield above 5.2%. The 30-year US Treasury yield briefly breached 5.6%, holding at multi-year highs. Elevated long-end yields continue to support the appeal of dollar-denominated assets. Following the temporary negative shock from economic data, the US Dollar Index recovered quickly and maintained a high-range trading pattern, pressuring major global non-US currencies.
 

Against the backdrop of dollar strength, movements among major non-US currencies diverged. The euro remained weighed down by the sluggish Eurozone economy. Eurozone manufacturing and services PMIs have stayed in contraction territory for an extended period, lifting expectations of ECB monetary easing and keeping EUR/USD under sustained pressure. For the Japanese yen, USD/JPY once again tested the critical 160 threshold. Markets remain on high alert for verbal intervention or direct forex market intervention by the Bank of Japan. Whenever the exchange rate nears 160, trading capital turns cautious, amplifying short-term volatility in the yen. The British pound is caught in a tug-of-war between sticky UK inflation and recession fears, fluctuating in tandem with US economic data and US Treasury yields. Volatility across global foreign exchange markets has risen markedly. Short-term trading is predominantly “data-driven”. Every release of US CPI, employment and PCE figures triggers sharp rallies or sell-offs in non-US currencies, with frequent stop-loss hunting episodes in the short run.
 

Market institutions generally point out the core contradiction in the current foreign exchange market: the US economy shows structural divergence. Employment has marginally weakened, yet consumption retains resilience, and inflation remains sticky. This makes a rapid shift toward monetary easing by the Fed difficult. This scenario of “no full recession but slow inflation deceleration” prevents the US dollar from entering a trend-driven deep decline. Unless successive inflation readings show substantial downside surprises that fully erase December rate hike expectations and bring forward pricing for a rate-cut cycle, the dollar will struggle to open room for a deep correction. Until then, the US dollar is likely to keep oscillating at elevated levels.
 

3. Gold Pricing Logic Explained: Non-Yielding Assets Are Suppressed by High Real Interest Rates; Central Bank Gold Purchases Provide Long-Term Support

Gold itself generates no interest income. Therefore, US Treasury real yields represent the most critical variable determining the medium-to-long-term trajectory of gold prices. Nominal US Treasury yields remain stubbornly high at present. Even as inflation moderates slightly, real interest rates stay relatively high, raising the opportunity cost of holding gold. This is the fundamental reason behind the recent phenomenon where “bullish data fails to sustain gold rallies”. Any bounce in gold prices triggered by cooling US employment and inflation data is merely a short-term speculative move driven by shifting expectations. Unless long-dated US Treasury yields trend lower, bullish rebounds are prone to being unwound by profit-taking flows, making it hard to form a sustained uptrend.
 

At the same time, a long-term supportive factor exists in the market: ongoing gold reserve accumulation by central banks worldwide. Data tracked by the World Gold Council shows that multiple central banks globally keep purchasing gold. The objectives include diversifying foreign reserve allocations, reducing exposure to dollar assets, and hedging against geopolitical and sovereign debt risks. Multiple central banks including the People’s Bank of China continue net gold purchases. This buying comes from medium and long-term allocation capital and is unaffected by short-term interest rate swings. Such purchases underpin the downside during sharp gold price corrections, preventing a one-sided crash in gold and forming a tug-of-war dynamic: suppressed by interest rates in the short run, supported by central bank gold buying on the long horizon.
 

Institutional views remain divided. Goldman Sachs holds a relatively moderate stance, stating gold is trading within a wide range in the near term, with cautious bullishness but no recommendation for chasing rallies. JPMorgan judges that gold has entered a high-volatility data window, with price action entirely guided by US economic data. Under the baseline scenario, the Fed pauses rate hikes in October while retaining the option for a December hike. Real yields oscillate at high levels and gold prices move within a range. Two-sided risk scenarios exist: if University of Michigan consumer inflation expectations rise going forward, long-end US Treasury yields may surge again, exposing gold to downside risk near $4,080 per ounce. Conversely, if subsequent inflation data posts consistent, sizeable declines, markets will fully price out additional rate hikes, and gold may rebound to test resistance at $4,250 per troy ounce.
 

4. Fed Officials’ Remarks and Key Events to Watch

The Federal Reserve maintains a “data-dependent” policy framework with no pre-set path for interest rates. Officials uniformly state that the tightening cycle can only end once inflation falls persistently and credibly toward the 2% target. They do not rule out the possibility of resuming rate hikes in response to changes in data. Multiple policymakers repeatedly emphasise that inflation cannot be deemed controlled based solely on one or two months of employment or inflation prints. Continuous monitoring of services inflation, wages, energy prices and other indicators is required.
 

Upcoming market focal events:
 

1. October 7: The Fed releases the minutes of the September FOMC meeting. Markets will parse details of internal discussions among policymakers to gauge the degree of division between hawks and doves and identify clues for future policy.
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3. US September CPI and PPI inflation data. These are the most important inflation metrics ahead of the October FOMC meeting and directly determine whether the Fed will resume rate hikes in October.
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5. University of Michigan Consumer Sentiment and Inflation Expectations Survey. A rebound in household inflation expectations would be regarded as a major risk by the Fed and reinforce its hawkish stance.
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7. Crude oil and energy price trends. Energy is a key variable for short-term inflation. Rising oil prices would push up headline CPI and create pressure for the Fed to maintain high interest rates.
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9. Global geopolitical events. Escalating conflicts may trigger safe-haven buying of gold temporarily, yet safe-haven rallies usually have short lifespans amid a high-interest-rate environment.
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5. Consolidated Institutional Views

Analysis compiled from multiple macro brokerages and large global investment banks suggests the Fed is currently in a delicate balancing phase of monetary policy. The labour market has already shown signs of deceleration, yet inflation stickiness has not fully disappeared, forming a combination of “weakening employment + persistent inflation”. Within this environment, the US dollar oscillates at high levels in the foreign exchange market while gold trades within a high-volatility range, making a one-sided trend move difficult to materialise. Short-term price action remains dominated by US economic data. Each data release can rapidly revise rate hike expectations and trigger sharp simultaneous swings in US Treasury yields, the US dollar and gold. Until the Fed sends clear signals of a shift toward easing, trading bullish positions in precious metals becomes more challenging, and risks of chasing short-term rallies are elevated. For forex traders, tracking movements in long-dated US Treasury yields carries greater value than focusing purely on near-term rate expectations.