Can gold rally while the Fed is still hiking?

Gold ended last week with its best day in some time. Spot gold closed Friday at $4,196.07 an ounce, up 1.5%, according to a report on ad-hoc-news.de citing Reuters and AP — a bounce off a two-month low. The same report is blunt about what the bounce runs into: a Federal Reserve that is still raising rates, and a futures market that expects it to keep going.

What drove Friday’s rebound

The report lists four things working in gold’s favour at once: bargain buying after the slide to a two-month low, softer oil prices, a weaker US dollar, and lower yields on long-dated Treasuries. The last two matter most. Gold is priced in dollars, so a softer dollar makes it cheaper for everyone else; and gold pays no interest, so a fall in bond yields shrinks what an investor gives up by holding it instead.

Silver moved the same way and further. The Eastern Herald puts Friday’s silver gain at 2.8% and ties it to the dollar index slipping to around 102 and the 10-year Treasury yield easing from 5.35% to 5.23% after a weak US jobs report — the full breakdown is in our silver levels piece.

The rate-hike odds, explained

According to ad-hoc-news.de, markets are pricing roughly an 18% chance of a Fed hike in October and an 82% chance by December, and most Fed officials, per an AP report, still consider another increase likely in 2026. Earlier in the week FXStreet, citing CME FedWatch, put the December figure at 78% — close, but a reminder that these numbers differ by source and by day. Those percentages are not a vote or a forecast by any one person: they are what interest-rate futures imply, and they move every time new data lands.

They have moved a lot already. The Eastern Herald reports that the weak jobs report cut the market’s odds of an October hike from about 70% to below 25% in a single session — which is consistent with the 18% figure above, and a reminder of how quickly this number turns.

Minutes from the Fed’s September meeting, as reported by FXStreet, showed unanimous support for that month’s hike and a majority in favour of another one before year-end. That is the backdrop the market is pricing: not whether the Fed is hawkish, but how soon it acts on it. We cover the bond-market side of this in Yields at a 24-year high: why precious metals haven’t collapsed.

Why higher rates make gold more costly to hold

An ounce of gold earns nothing while you hold it. A Treasury bill, a savings account or a money-market fund does, and the more the Fed raises rates, the more those alternatives pay. Economists call the income given up the opportunity cost of holding gold, and it is the single most reliable force on the gold price over time — which is why our explainer on what moves the gold price puts real interest rates first.

What makes this market unusual is that gold has held up at all. Even after a correction, Friday’s close sits around a quarter below January’s all-time high of about $5,589, yet far above where it traded before the hiking cycle began. Other forces — central-bank buying, record ETF inflows, and worry about government debt — have been pulling the other way. We look at each of them in the central-bank scoreboard, the ETF flow numbers and gold as a hedge against government debt.

What to watch this week

• US consumer prices (CPI), Wednesday 14 October. The inflation number the Fed watches most closely in public. A hot reading tends to lift hike odds and yields; a soft one does the reverse.
• US producer prices (PPI), Thursday 15 October. Pipeline inflation, and a check on whatever CPI suggested.
• The Fed’s next meeting, 27–28 October. The October hike odds above are a bet on this meeting.

None of that tells you where gold goes next, and we do not try to. What it does tell you is which numbers the market will be reading gold against. The live gold price shows how it is taking them.

Every figure here is as reported by the publications listed under Sources, at the time they reported it. Prices move; the live gold price has the current one. Nothing on this page is investment advice.