OCBC strategists Sim Moh Siong and Christopher Wong describe Gold as sluggish despite a sharp pullback in October Fed hike expectations, with long-end US Treasury yields resuming their rise and the US Dollar (USD) firm. They argue lower Fed hike risk alone is insufficient for a sustained recovery, stressing that a more durable decline in real yields and the Dollar is needed for Gold to turn higher.

Precious metal needs weaker Dollar and yields

"Gold remained sluggish overnight despite the sharp pullback in expectations for an October Fed hike. Long-end UST yields resumed their rise, oil stayed elevated while ISM prices index rose further, keeping inflation concerns alive."

"This reinforces our view that lower Fed hike risk alone may not be enough to drive the next leg higher in gold. A more sustained turnaround (lower) in long-end/ real yields and the USD would be the cleaner catalysts for gold to recover."

"But until then, gold may remain vulnerable to further consolidation, particularly if incoming US data continue to point to sticky inflation despite softer labour-market conditions."

"Gold last at 4140 levels. Mild bearish momentum on daily chart intact while RSI is flat. We continue to watch price action - compression of moving averages typically precedes a breakout trade."

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