【TMGM Financial Recap】AI Bubble Concerns Weigh on the Dollar as Gold May Find a Clearer Direction This Week!

The global gold market ended last week lower after sharp swings at elevated levels, with spot gold recording a weekly decline of approximately 0.7%. Markets are struggling to assess the likelihood of further interest rate hikes by the Federal Reserve. On the one hand, September inflation figures repeatedly exceeded expectations, reinforcing expectations of tighter monetary policy. On the other, cautious comments from Fed officials, safe-haven demand triggered by the sell-off in the AI sector, and a weaker dollar gave gold some breathing room.

Spot gold edged higher on Monday, briefly touching around $4,185 per ounce. This suggests that bulls are still attempting to defend key support as oil prices retreat and some geopolitical developments ease tensions. Gold remains largely range-bound, trading towards the lower end of its support range, primarily because considerable uncertainty surrounds the Fed’s next move.

The key driver of market sentiment has been a series of stronger-than-expected September inflation figures in the United States. CPI data released last Wednesday showed accelerating price increases, while Thursday’s PPI figures recorded the largest rise in four and a half years. The Chicago Fed president described the figures as disappointing, warning that the Fed might need to raise rates more aggressively if public inflation expectations deteriorate significantly.

Meanwhile, speaking at the World Bank’s annual meetings, Fed Chair Warsh expressed optimism about the strength of the US economy. However, he made clear that he would not prejudge interest rate decisions and offered no guidance on the policy path. According to CME’s FedWatch tool, the market-implied probability of rates remaining unchanged at the October meeting has risen to around 83%, while the likelihood of a December rate hike remains as high as 88%–90%. Higher interest rates reduce the appeal of gold as a non-yielding asset. Gold prices could edge lower over the remainder of the year as the Fed continues raising rates, particularly if concerns about the AI boom prove temporary.

Notably, selling pressure from the sharp decline in AI stocks also spread to parts of the credit market, as investors worried that data centre operators might fail to become profitable in time to repay their debts. The relationship between the dollar and AI-related trading has become unusually close. A technology stock sell-off would typically boost safe-haven demand for the dollar, yet last week the dollar weakened even as investors sought safety in bonds. This dollar weakness provided some support for gold.

Geopolitical tensions persist this week, while the US economic calendar is relatively light. Weekly jobless claims are due on Thursday, followed on Friday by S&P Global’s manufacturing, services and composite Purchasing Managers’ Indices, along with the University of Michigan’s October Consumer Sentiment Index. These releases will further test labour market resilience and business and consumer confidence, shaping market expectations for the Fed’s policy path.

Market Insight:

Overall, gold remains caught between competing forces. Its role as a hedge against inflation and geopolitical risks remains intact. However, in a high-interest-rate environment, its performance will depend more on incremental shifts in policy expectations than on a sustained move in one direction.