Trend-Following Funds Turn Heavy Sellers of Gold After Hot CPI, but TD Securities Sees Buyers Below $4,100
Gold fell nearly 2% on Wednesday to a five-day low of $4,073 per ounce after US inflation data came in hotter than expected. The sell-off was sharpened by a specific group of traders. According to TD Securities, trend-following funds have turned heavy sellers of gold, while the bank expects steady buying flows to support the price between $4,000 and $4,100. Understanding who is selling, who is buying and at what level is more useful than the headline drop alone.
The inflation data that triggered the fall
September US consumer prices rose 0.6% on the month, as expected, but the annual rate accelerated to 3.7% from 3.4% in August, above the 3.6% consensus, according to FXStreet. Core inflation, which excludes food and energy, rose 0.3% on the month and 2.6% on the year, up from 2.4% and above the 2.5% forecast. Mitrade's market report attributes the headline rise to higher gasoline, diesel and food prices, while shelter, owner-equivalent rent, recreation, education and used-car prices lifted the core measure.
A core reading above forecast matters more to the Federal Reserve than the headline, because it signals that price pressures have spread beyond energy. The data pushed Treasury yields higher at the short end: the 2-year yield rose nearly 3.5 basis points to 4.829%, and the 10-year added about 1 basis point to 5.209%.
Fed hike odds jump
The probability of a Fed rate increase at the 27 to 28 October meeting moved sharply higher. FXStreet cites CME FedWatch pricing of about 31.6%, up from roughly 22% before the data, while Mitrade puts the figure at 42%, up from about 22% a day earlier. The two sources use different snapshots, but both show a large jump. Odds of a December increase sit near 90%, and investors price in 54 basis points of further tightening for 2027.
Gold pays no interest, so each increase in expected rates raises the cost of holding it. That is the mechanism behind the price drop.
Who is selling
TD Securities noted that trend-following funds, often called commodity trading advisers, have become heavy sellers of gold. These funds use rules based on price momentum. When a price breaks below key moving averages, their models sell, often in size and regardless of fundamentals. Gold now trades below its 100-day moving average, which sits around $4,248, and has failed repeatedly at $4,200. That pattern is exactly what momentum models read as a sell signal.
Momentum selling tends to be mechanical and short-lived relative to the underlying demand. It can push a price lower than fundamentals alone would justify, and it often ends when the models have finished adjusting their positions.
Who is buying
TD Securities expects steady buying flows to support gold between $4,000 and $4,100. Those flows come from central banks that add to reserves on a schedule, from physical buyers in Asia who treat price drops as an opportunity, and from long-term investors who accumulate gradually. The bounce on Thursday suggests some of that demand has already appeared. FXStreet reported that gold held modest gains below $4,150 in early European trade, ending a three-day losing streak, as US bond yields and the dollar retreated from post-CPI highs.
Levels traders are watching
On the downside, sellers target $4,050 first, then $4,000, followed by the 29 July low at $3,996 and the yearly low at $3,941. Bank of America has said it expects gold to fall below $4,000 over the next three months and to average $4,000 in the fourth quarter. On the upside, buyers need a sustained move above $4,200 to $4,220 to test the 100-day average near $4,250. The 14-day relative strength index sits near 39, which is soft but not yet at the oversold level of 30.
Fed officials added to the hawkish tone. San Francisco Fed President Mary Daly said further hikes are likely to be needed, but that none is required at the October meeting, and that timing should be thoughtful and deliberate. New York Fed President John Williams said he sees another hike in 2026 and none in 2027. Governor Michelle Bowman described the Fed as in wait-and-see mode.
What this means for physical holders
A market driven by momentum funds in the short run and by physical and official buyers in the long run can look unsettling from day to day. Gold has fallen about 27% from its January record of $5,598.58, and the latest drop took it to the lower part of the range that has held since early August. For holders of 999 and 916 gold, the more relevant question is time horizon rather than the weekly price.
Staged purchasing remains a sensible discipline in volatile conditions, because it avoids committing the full amount on a single day. Buyers should compare the quoted price per gram with the live gold price on Trading Economics, ask how the workmanship charge is set, and confirm buyback terms before paying. Check the purity stamp and keep the receipt with the item.
The next catalysts are US producer prices on Thursday and a speech by Fed Chair Kevin Warsh on Friday. Either could move the price quickly, and traders will watch whether the $4,000 to $4,100 buying zone holds as TD Securities expects.
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