Key Takeaways
- • Gold futures fell 6.6% in September and trade near $4,170, about 11% below their August high, yet remain above their June low near $4,000 as central banks keep buying.
- • The People's Bank of China added 740,000 ounces (about 23 tonnes) of gold in September, its 23rd consecutive monthly increase and largest monthly purchase since September 2023, bringing holdings to roughly 2,410 tonnes.
- • NYMEX Heating Oil futures were near $4.94 per gallon on 13 October, more than double year-ago levels, driven by physical supply disruption rather than currency moves.
- • The U.S. 10-year Treasury yield rose above 5.35% on 7 October, its highest since 2002, while the New York Fed's term premium reached 0.82%, the highest since 2014.
- • Central bank decisions from the Fed and ECB on 29 October and the Bank of Japan on 30 October are expected to set the near-term tone for both markets.
Summary
According to the publication's analysis, a strong U.S. dollar and the Federal Reserve's September rate hike have not produced their usual drag on gold and heating oil. The Dollar Index is near an 18-month high, and the Fed, under Chair Kevin Warsh, raised its policy rate to 3.75–4.00% on 16 September, its first increase since 2023, with markets pricing a further move by December. Under normal conditions, a firmer dollar and tighter policy would be expected to pressure commodities.
Heating oil is trading on its own fundamentals. NYMEX Heating Oil futures, the U.S. diesel benchmark, peaked near $5.20 in mid-September and were near $4.94 on 13 October, while U.S. retail diesel set a record $6.52 per gallon on 22 September. According to the IEA, Ukrainian drones struck a Russian refinery roughly once every three days in the first eight months of the year, Russia's diesel export ban was extended to the end of October, and Iran's near closure of the Strait of Hormuz has curtailed regional product exports. China has suspended most fuel exports for October. U.S. distillate inventories were about 12% below their five-year average in the week to 2 October. Policy responses, including a 5 October executive order allowing dyed diesel on highways and a temporary sanctions license for Russian diesel, are viewed as marginal, since the Russian volumes total roughly 4.8 million tonnes, about ten days of U.S. demand spread over several months. The G7's 2 October agreement to release 100 million barrels of reserves over four months is seen as the more meaningful supply factor.
Gold's support is monetary rather than physical. U.S. consumer prices rose 3.7% in the year to September, with core inflation at 2.6%, keeping the Fed on a tightening path. Gold futures fell 6.6% in September, but official sector demand has kept prices above their June low. The People's Bank of China increased reserves for a 23rd consecutive month, adding about 23 tonnes in September, and gold's share of China's official reserves has risen from about 4% at the end of 2023 to nearly 9%, by the publication's calculation.
Rising Treasury yields underpin this official buying. The 10-year yield exceeded 5.35% on 7 October, its highest since 2002, driven by Fed tightening and a rising term premium. The CBO projects a fiscal 2026 deficit of 5.8% of GDP. China's Treasury holdings fell to $618 billion in July, the lowest since 2008 according to U.S. Treasury data, even as its gold reserves grew. The publication characterizes this as a gradual rebalancing rather than an exodus, noting solid demand at the 8 October 30-year auction, where indirect bidders took 72.3%.
The publication concludes that both markets are being driven by forces the dollar has not displaced: physical scarcity in distillates and strategic central bank demand for gold. The 29–30 October central bank decisions could weigh on both markets in the near term, but neither market is likely to shift on a single policy statement.
Heating oil is trading on its own fundamentals. NYMEX Heating Oil futures, the U.S. diesel benchmark, peaked near $5.20 in mid-September and were near $4.94 on 13 October, while U.S. retail diesel set a record $6.52 per gallon on 22 September. According to the IEA, Ukrainian drones struck a Russian refinery roughly once every three days in the first eight months of the year, Russia's diesel export ban was extended to the end of October, and Iran's near closure of the Strait of Hormuz has curtailed regional product exports. China has suspended most fuel exports for October. U.S. distillate inventories were about 12% below their five-year average in the week to 2 October. Policy responses, including a 5 October executive order allowing dyed diesel on highways and a temporary sanctions license for Russian diesel, are viewed as marginal, since the Russian volumes total roughly 4.8 million tonnes, about ten days of U.S. demand spread over several months. The G7's 2 October agreement to release 100 million barrels of reserves over four months is seen as the more meaningful supply factor.
Gold's support is monetary rather than physical. U.S. consumer prices rose 3.7% in the year to September, with core inflation at 2.6%, keeping the Fed on a tightening path. Gold futures fell 6.6% in September, but official sector demand has kept prices above their June low. The People's Bank of China increased reserves for a 23rd consecutive month, adding about 23 tonnes in September, and gold's share of China's official reserves has risen from about 4% at the end of 2023 to nearly 9%, by the publication's calculation.
Rising Treasury yields underpin this official buying. The 10-year yield exceeded 5.35% on 7 October, its highest since 2002, driven by Fed tightening and a rising term premium. The CBO projects a fiscal 2026 deficit of 5.8% of GDP. China's Treasury holdings fell to $618 billion in July, the lowest since 2008 according to U.S. Treasury data, even as its gold reserves grew. The publication characterizes this as a gradual rebalancing rather than an exodus, noting solid demand at the 8 October 30-year auction, where indirect bidders took 72.3%.
The publication concludes that both markets are being driven by forces the dollar has not displaced: physical scarcity in distillates and strategic central bank demand for gold. The 29–30 October central bank decisions could weigh on both markets in the near term, but neither market is likely to shift on a single policy statement.
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