Forget Halloween, The Fed's Already Thinking About The Christmas Holidays

The weeks leading up to and following last months Fed interest rate rises have been increasingly difficult for the gold price. It's been a constant battle against a combination of rising oil prices, stubborn inflation and strong expectations of further US interest rate rises before the close of 2026. But with October's Federal Reserve decision now looking increasingly like things will stay put, the markets focus will be on Decembers decision where they expect a further rise to be announced then instead.

At the start of this week, markets were pricing in an almost 88% probability of at least one further US rate rise by December, compared with just 17% for October. Yet the latest economic data over the last couple of weeks is beginning to tell a different story, whilst some of the strong employment data last month that helped nudge the Fed to their September decision has been found to be heavily overestimated and inaccurate. With several important releases still to come this week, could the case for another rate rise start to unravel and therefore give gold some much-needed breathing room?

Does the Fed need to raise rates?

The latest US employment figures have raised fresh questions about the strength of the economy. Just 29,000 jobs were added in September, while figures for July and August that initially indicated unexpected growth were also revised down by a combined 60,000 in the last few weeks. Consumer confidence data has also weakened, suggesting American households are becoming increasingly concerned about the economic outlook.

For the Federal Reserve, this creates a difficult balancing act. Higher interest rates can help bring inflation under control, but they also make borrowing more expensive and risk weakening an economy that is already showing signs of strain. An interest rate rise in October is always risky business with the midterm elections, so whilst the data gives the Fed an easy way out of an October hike, it pushes more emphasis and pressure going into the December decision.

Currently the markets are pricing in a December interest rate hike, however, if the economic data continues to deteriorate, the Fed may find it increasingly difficult to justify another rate rise. In turn, this could potentially pull US Treasury yields and the dollar lower, which are both positive for gold. Higher bond yields make interest-bearing assets more attractive relative to gold, which pays no interest, while a stronger dollar generally makes the metal more expensive for buyers using other currencies.

We saw a glimpse of this on Tuesday, when falling Treasury yields, a softer dollar and lower oil prices offered gold some support in a challenging environment. However, one better trading session does not mean the pressure has disappeared.

Oil Could Still Spoil the Recovery

Much of gold's recent weakness, and indeed throughout much of 2026, has been linked to the consequences of the conflict involving Iran and the disruption to oil supplies through the Strait of Hormuz. Higher oil prices increase energy, transport and production costs, feeding inflation throughout the economy. That makes it harder for the Fed to consider ending its tightening cycle, even when employment and consumer confidence are weakening.

There was some slight relief on Tuesday, with Brent crude retreating towards $105 a barrel after reaching a near one-month high. The possibility of additional Russian diesel supplies helped ease some immediate supply concerns. However, tensions involving Iran remain unresolved, with continued threats to shipping through the Strait of Hormuz. Any renewed disruption could quickly push energy prices higher again, which leaves gold in an unusual position. Although geopolitical uncertainty can increase demand for safe-haven assets, the inflationary consequences of higher oil prices are currently helping to keep interest rates, bond yields and the dollar elevated.

A sustained easing in oil prices could therefore prove important. It would help reduce inflationary pressure and potentially weaken the argument for another interest rate rise in December.

The Next Few Days Could Change the Picture

This week sees a flurry of US economic data released that may help us paint a clearer picture of what to expect with regards to potential interest rate rises. Wednesday's US Consumer Price Index (CPI) report is the first major test, followed by producer inflation and retail sales figures on Thursday. Friday also sees the Kevin Warsh speak at the IMF conference, which could provide further clues about how policymakers are interpreting the latest developments.

If inflation comes in below expectations, particularly alongside weaker economic activity, markets may begin questioning whether December's anticipated rate rise is necessary, creating an opportunity for gold to recover as bond yields and the dollar retreat.

However, a stronger-than-expected inflation reading would tell a different story. It could reinforce expectations of further tightening, particularly if energy costs continue to rise, and keep gold under pressure. The key question is no longer simply whether the Fed raises rates in October, but whether the economic evidence over the coming weeks can change what markets currently expect in December.

China Is Playing a Longer Game

As we have covered before, whilst US economic policy and geopolitical events guide us into looking at whats impacting the gold price for the here and now - central banks and their behaviour with gold perhaps guide us more on the long term. So while traders focus on the Fed's next decision, it's been interesting to note what central banks are doing and their longer-term perspective on gold.

China is a particularly interesting example. The People's Bank of China has continued adding gold to its reserves, extending a sustained period of purchases as Beijing seeks to reduce its reliance on the US dollar. This is part of a wider trend towards diversifying national reserves, driven by concerns about US government debt, geopolitical tensions and the role of the dollar in international trade.

Unlike investors responding to the next inflation announcement, central banks generally make reserve decisions over much longer periods. Their purchases reflect strategic considerations that extend well beyond the next Federal Reserve meeting. That does not make gold immune to short-term price falls. Higher interest rates and a strong dollar can still exert considerable pressure, as recent weeks have demonstrated. But it does highlight an important distinction between the forces moving gold today and those potentially supporting demand over the years ahead.

Has the Market Got Ahead of Itself?

For now, gold's immediate outlook remains closely tied to the Fed, oil prices and the economic data coming out of the United States. A December interest rate rise is still heavily anticipated and is largely baked into the current price, but expectations are not decisions. If weaker employment figures are followed by softer inflation and easing energy costs, the argument for another increase could become considerably less convincing.

Equally, renewed oil disruption or unexpectedly strong inflation could leave the Fed with little room to change course, prolonging gold's recent struggles. However, the longer-term picture remains more complex, with central bank buying and efforts to diversify away from the dollar continuing alongside these short-term pressures.

Markets may think they know what the Fed will do in December, but the next few days could give them reason to think again.