Gold Is Back. Is $4,100 the Bottom?

Hotter-than-expected U.S. inflation was supposed to be bad news for gold. Instead, the selloff barely lasted.

Gold quickly erased its post-CPI losses on Thursday and rallied above $4,160, with buyers once again defending the $4,100 area. After more than two weeks of repeated tests, that support is starting to look increasingly important.

So, has gold finally found a floor?

Hot CPI, But the Fed Isn't Rushing

September headline CPI accelerated to 3.7%, while core inflation rose to 2.6% — hardly the kind of numbers the Fed wants to see.

Still, the details were less alarming than the headline suggested. Energy accounted for a large part of the increase, while recent labor-market data has pointed to softer hiring.

Fed officials also appear reluctant to rush into another hike. San Francisco Fed President Mary Daly said further tightening may still be needed, but signaled little urgency to act in October.

That leaves markets with a more nuanced message:

Inflation is still too hot, but another immediate rate hike is far from certain.

Yields and the Dollar Give Gold Some Breathing Room

More importantly for gold, the bond market has started to turn.

The U.S. 10-year Treasury yield has retreated toward 5% after its recent surge, while the Dollar Index is testing support around 102. If yields and the dollar continue to lose momentum, two of gold's biggest headwinds could

begin to fade.

That puts $4,100 firmly in focus.

Gold has tested the area several times since its late-September selloff without closing decisively below it. As long as that support holds, the rebound remains in play. A push through recent highs would strengthen the case that the correction is losing steam.

For gold traders, the reaction to CPI may be more revealing than the CPI number itself.

Hot inflation couldn't break $4,100. Now the question is whether buyers can turn that defense into a real comeback.