Gold (XAUUSD) Price Forecast: Oil Plunge Gives Gold Relief Before Payrolls

Gold is modestly higher Monday because crude oil broke sharply lower and Treasury yields followed it down. President Trump canceled a planned strike on Iran and said he expects negotiations to restart. Oil dropped more than $4 a barrel on the headlines and the hawks lost a piece of their inflation argument for the session.

Iran says there are no immediate plans for direct talks with the United States and claims the Hormuz discussions are only with Oman. Nobody has confirmed a meeting, let alone a deal. Lower crude took some heat off the rate trade but it does not settle anything with the Fed split 9-3 and Friday’s payrolls still ahead. At 12:36 GMT, Spot Gold (XAUUSD) is trading $4,050.53, up $5.37 or +0.13%.

Oil was the inflation problem last week. Higher crude kept the September hike case alive and helped push long-end yields to levels not seen since 2007. Monday’s break pulled a piece of that out and gold moved because the rate outlook improved for the day, not because anybody got bullish on the metal.

Do not count on crude staying here. The Iran story is one headline and it can reverse on the next one. If talks go nowhere and Hormuz supply risk comes back into the price, gold loses the relief it is getting from cheaper energy. The metal does not need a new strike to come under pressure. It just needs oil to stop falling and the inflation story moves right back in front of the committee. Monday’s move has room if oil holds lower. It does not have room to become something bigger if crude bounces back by midweek.

The 10-year yield fell to 4.688%. The 30-year dropped to 5.226%. The 2-year came in at 4.252%. Front-end yields are cooperating with gold. The long end is not. Last week’s 30-year print above 5.20% was the bond market telling the Fed it has an inflation credibility problem. One morning of lower crude does not fix that. The short end is responding to lower oil but the long end is holding, and gold rallies run into that ceiling every time the long end refuses to come down.

The dollar gave gold some help after yen intervention pushed the greenback lower, but the Dollar Index barely moved Monday at 99.801. The currency is trying to stabilize near a three-month support zone and if it finds a floor before payrolls, gold loses one of the supports from the post-Fed trade.

Hammack, Logan and Kashkari wanted an immediate quarter-point hike . Those votes did not disappear because oil dropped for one session. The three dissenters think inflation stays above 2% without tighter policy and they have a full week of labor data to press the case. ISM manufacturing at 14:00 GMT Monday opens the economic calendar. ADP employment data lands midweek. Friday’s payrolls report is the number that decides whether September stays in play or fades. Weak labor data gives Warsh cover to hold again and gold keeps the bid. Firm wages and solid hiring hand the dissenters a labor-market argument on top of the inflation argument they already made with their votes. I think the risk is tilted toward sellers this week because the bar for the hawks is lower than the bar...