On Thursday (October 8), the global gold market finally saw a glimmer of recovery after touching a two-month low in the previous session. Spot gold rose 0.58% to close at $4,133.65 per ounce, while December-delivered U.S. futures gold settled 0.4% higher at $4,157 per ounce.

On the surface, this was merely a modest gain, but beneath it lies a complex web of forces: heightened uncertainty over the Federal Reserve's policy path, mounting concerns about U.S. debt, the tug-of-war between the dollar and Treasury yields, Middle East tensions and risks surrounding the Strait of Hormuz, inflationary shadows cast by elevated oil prices, and political and debt crises in the eurozone. Gold stands at a crossroads of intense bullish and bearish forces, and any shift in either direction could ignite the next major move.

In early Asian trading on Friday (October 9), spot gold edged higher in a narrow range, trading around $4,142.60 per ounce. Weighed down by a stronger dollar and rising U.S. Treasury yields, spot gold had touched its lowest level since August 5 on Wednesday. By Thursday, although prices rebounded slightly, market sentiment remained cautious.

The dollar and the 10-year U.S. Treasury yield had risen for a second consecutive session, placing direct pressure on non-yielding gold, as higher interest rates increase the opportunity cost of holding the metal. However, as demand for the U.S. 30-year Treasury auction proved solid, yields pulled back from their highs, and the dollar index fell 0.14% to 102.11. A weaker dollar typically provides support for dollar-denominated gold, while falling yields ease valuation pressure on the metal. It is this interplay of bullish and bearish factors that has created a fragile equilibrium for gold near its two-month low.

Fed Uncertainty: Divergent Meeting Minutes and Waller's Flexible Rate Stance

The Federal Reserve is currently the single largest source of uncertainty for the gold market. Meeting records showed that Fed policymakers were clearly divided last month on the case for raising rates. While some participants saw a need to hike to curb the impact of energy and other price shocks, more hawkish core policymakers argued that rate increases were necessary to guard against emerging demand-driven inflation. This means there is no truly preset policy path within the Fed. As WisdomTree commodity strategist Nitesh Shah noted, the minutes underscored the fact that there is no real predetermined path for policy, which has slightly amplified volatility in the gold market.

Fed Governor Waller said Thursday that further rate hikes may be needed to bring inflation down to the Fed's 2% target, but added that the pace of increases is flexible and left the door open for a pause in October. CME's FedWatch tool shows traders see a 17% probability of a rate hike in October, but expect an 81% chance of an increase in December. This expectation is quite nuanced for gold: if the Fed does pause in October, gold may get a brief respite; but if December hike expectations continue to strengthen, gold will remain under pressure.

However, Infrastructure Capital Management CEO Jay Hatfield believes that the 10-year U.S. Treasury yield has already peaked, with the peak likely around 5.30% or even lower. The most pessimistic phase of market expectations for Fed rate hikes has passed, and the Fed can only raise rates once more in this cycle, rather than the three hikes currently priced in by the market. If this assessment proves correct, the interest rate pressure facing gold may be nearing its end.

Debt and Yields: Gold's Counterpoint Value Emerges

Beyond Fed policy, America's soaring debt levels are becoming an increasingly important narrative for the gold market. Nitesh Shah pointed out that rising yields appear to highlight growing market concerns about high debt levels. If debt continues to climb, gold, as the counterpoint to fiat currencies and government assets, is likely to be favored. This logic can also be traced in bond market data.

The U.S. 30-year Treasury auction saw solid demand, with a high yield of 5.618%, below the expected rate at the bid deadline. The bid-to-cover ratio reached 2.54 times, outperforming the average of 2.41 times from the previous six auctions. Indirect bidders, including foreign investors, were allotted 72.3%, also above the previous six-auction average of 69.1%. This indicates that despite sustained selling pressure in the market, investors remain willing to buy long-term government bonds.

Nevertheless, the absolute level of yields remains high. The U.S. 10-year Treasury yield fell 5 basis points to 5.227% on Thursday, after touching a 24-year high on Wednesday. The 30-year bond yield dropped 5.9 basis points to 5.602%, and the two-year yield edged down 1.3 basis points to 4.751%. The two-year/10-year yield spread narrowed from 51.4 basis points to 47.1 basis points, having briefly reached 54.2 basis points earlier in the session, the widest since mid-August. The flattening yield curve reflects complex market expectations for economic growth and monetary policy.

For gold, high yields are a headwind, but debt concerns and fiscal risks are potential supports. Once the market shifts from interest rate trading to debt credit trading, gold's value as the counterpoint to fiat currencies and government assets will become more prominent.

Geopolitical Risks and Oil Prices: Powder Keg in the Strait of Hormuz

On the geopolitical front, the Middle East situation remains volatile. Sources said that after Iran once again warned it would blockade shipping routes not authorized by it, oil tankers attempting to transport critical cargo through the Strait of Hormuz face higher risks of attack and intimidation. The Strait of Hormuz is a vital global energy transportation chokepoint, and any disruption to passage would quickly drive up oil prices and inflation expectations.

Trump said Thursday that the United States would not attack Iran before the November U.S. congressional midterm elections, and stated that the two countries are engaged in productive negotiations to end the six-month war. The war began in February when the U.S. and Israel launched strikes on Iran. The conflict has dragged down Trump's domestic approval ratings and placed heavy pressure on his Republican colleagues. Recent polling shows about 60% of Americans disapprove of Trump's handling of the Iran situation, including one-quarter of Republicans. Voters cite the cost of living as their top concern, and the conflict has driven gasoline prices sharply higher.

The U.S. and Iran have exchanged proposals in recent weeks aimed at ending the war and reopening the Strait of Hormuz, but Trump rejected Tehran's latest offer. Iran's official media quoted the head of the country's atomic energy organization on Thursday as saying that Iran will not abandon uranium enrichment or hand over its uranium stockpile. Days earlier, U.S. Vice President Vance said Iran must substantially reduce its uranium enrichment capacity. These developments mean geopolitical risks have not been resolved, and gold's safe-haven premium remains supported. However, Trump's statement about not attacking Iran before the midterms also caused crude oil prices to edge lower.

In oil markets, Brent crude futures settled at $103.92 per barrel, up 3.7%, while U.S. crude futures rose 3.4% to $91.17 per barrel. Both benchmarks briefly rose by $5 per barrel during the session. Elevated oil prices exacerbate inflation concerns and could force the Fed to maintain a hawkish stance, which is negative for gold. But inflation itself also boosts gold's appeal as an inflation hedge, so the impact of oil prices on gold is not one-directional.

Indirect Signals from the Dollar and Euro

The foreign exchange market is also providing indirect clues for gold. The dollar fell Thursday, the rise in eurozone government bond yields stalled somewhat, and market expectations for the Fed's rate path this year remained largely unchanged. The sharp jump in oil prices briefly intensified inflation concerns, and eurozone government bond yields rose sharply again as investors continued to sell bonds from heavily indebted countries such as France and Italy.

The French 10-year government bond yield rose 2.7 basis points to 4.8873%, having briefly reached 4.9685% during the session. France has been particularly hard hit, with investors scrutinizing the country's debt burden, budget deficit, and political outlook ahead of the 2027 presidential election. Spanish unions announced Wednesday a nationwide general strike on November 11 over housing issues, just weeks before a snap election.

Christoph Schon, head of multi-asset investment decision research at SimCorp, said there is now another factor affecting the euro, namely France's political crisis, and similar problems have now emerged in Spain. So the focus during this brief period is not interest rate spreads or monetary policy, but a very specific crisis facing the euro.

The euro rose 0.08% against the dollar to $1.1204, having briefly fallen to $1.1171 during the session. The dollar index fell 0.14% to 102.11. A weaker dollar typically supports gold, but Fed rate hike expectations still dominate the market. On the economic data front, the Labor Department said initial jobless claims fell by 2,000 to 197,000 last week, slightly below economists' estimate of 200,000, continuing to show a stable job market. Stable employment data supports the Fed's hawkish stance, which has somewhat limited gold's gains. St. Louis Fed President Musalem also made a more hawkish statement, saying the Fed needs to raise rates again to bring inflation back to the 2% target.

Outlook: Where Does Gold Go Next?

In the short term, gold is oscillating around $4,140, and the October Fed meeting will be a key turning point. If the Fed chooses to pause rate hikes, the dollar and Treasury yields may retreat, and gold could see a more pronounced rebound. If December rate hike expectations strengthen further, gold may test its two-month low again.

In the medium term, America's ever-rising debt, eurozone fiscal and political risks, the Middle East war, and uncertainty surrounding the Strait of Hormuz will all provide safe-haven buying for gold. In the long term, if the Fed's rate hike cycle is indeed nearing its end and real interest rates have peaked, gold's allocation value as the counterpoint to fiat currencies and government assets will be reassessed.

Investors need to closely monitor oil prices, inflation data, Fed officials' remarks, U.S. Treasury auction results, and the progress of U.S.-Iran negotiations. Overall, gold is not in a one-directional trend right now, but rather in a choppy pattern shaped by highly intertwined bullish and bearish factors. Thursday's modest rebound is the result of the market weighing Fed policy uncertainty, escalating debt concerns, and rising geopolitical risks. If debt concerns continue to fester, gold will shine as a safe haven; if Fed rate hike expectations heat up again, gold may come under pressure and retreat. As of 07:44 Beijing time, spot gold was quoted at $4,140.82 per ounce.