Gold drops below $4,000 amid mounting bets on a Fed rate hike

Gold comes under sharp selling pressure near $3,985 as Thursday’s early Asian trading gets underway.
Expectations of a Fed rate increase at its December policy meeting firmed after US CPI inflation exceeded forecasts.
Friday’s US October PPI inflation release will be a key focus for markets.

Selling pressure pushes Gold (XAU/USD) towards $3,985 in early Asian trading on Thursday. Losses in the precious metal deepen as stubborn inflation compels the US Federal Reserve (Fed) to keep monetary policy on a tightening course.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Expectations of a Fed interest rate increase next month strengthened after October’s US Consumer Price Index (CPI) exceeded the forecast rise of 0.3%. Figures released on Tuesday by the Labor Department's Bureau of Labor Statistics showed a 0.4% MoM increase, following September’s 0.6% advance.

StoneX Senior Market Strategist Bob Haberkorn explained the market’s reaction: “CPI came out a little hotter than expected, and the market is interpreting that it warrants higher rates at the December meeting,”

Expectations of a 50-basis-point Fed rate increase in December gathered momentum following comments from Fed governor Christopher Waller, who said he would back stronger action if CPI proved too hot. By increasing the appeal of interest-bearing assets, higher rates generally weigh on the precious metal.

According to the CME FedWatch Tool, markets have fully priced in a 25 bps rate increase. The likelihood of a 50 bps hike, meanwhile, climbed from 0% before the release to 12.7%.

For their next set of cues, traders will look to Friday’s release of US October Producer Price Index (PPI) inflation figures. A reading above expectations could bring further near-term selling pressure on the yellow metal.

Why is Gold gaining as risk aversion pressures equities and lifts bonds?

Deutsche Bank analysts describe a mixed cross-asset picture. Although "credit was actually fairly flat on both sides of the Atlantic," they observe that the broader "risk-off tone in equities meant it was a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August." They also note that, "along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world." Against that backdrop, however, Deutsche Bank adds that "the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type," highlighting divergent moves across assets heading into the latest session.

Does Goolsbee’s warning of a ‘real inflation issue’ signal a more hawkish Fed?

A more hawkish tone from Fed’s Goolsbee points to mounting concern over stubborn price pressures: his FXS Speechtracker score of 8/10 was markedly higher than the historical average of 6.8/10. Describing the latest CPI as “borderline disturbing,” services inflation as “not coming down,” and stressing that “we have a real inflation issue on our hands” suggests greater unease about underlying inflation, despite a labour market characterised as steady and stable. His repeated emphasis on tackling persistent inflation and the danger of expectations becoming unanchored points towards a preference for maintaining tight policy while retaining scope for further action. Such conditions generally support the Dollar relative to lower-yielding currencies.

With a 1.69-point increase to 145.61, the FXS Fed Sentiment Index remained firmly hawkish and substantially above the neutral 100 level. Taken together, the elevated index and an FXS Speechtracker reading above its baseline suggest that markets should continue factoring in a higher-for-longer Fed policy path. This combination typically favours the Dollar while weighing on currencies sensitive to risk sentiment.

Technical Analysis: Can Gold shake off its bearish bias below the 100-day SMA?

Trading below both the 20-day Bollinger simple moving average and the 100-day simple moving average, XAU/USD continues to face pronounced downside pressure on the daily chart. Together, these levels underpin a bearish near-term outlook. Prices are consolidating within the lower half of the Bollinger envelope, and the 14-day Relative Strength Index remains below its midpoint at 43. This suggests muted bearish momentum, though not oversold conditions.

Any recovery would first encounter resistance around $4,055 at the Bollinger middle band, ahead of the 100-day SMA at $4,200 and the upper Bollinger band near $4,215. Should losses extend instead, the lower Bollinger band close to $3,895 offers the next significant support, where sellers may consider booking some profits.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold: Frequently asked questions

What makes Gold attractive to investors?

Widely used as both a store of value and a means of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, it is now widely regarded as a safe-haven asset, making it a favoured investment during periods of turbulence. Because it does not depend on a particular issuer or government, Gold is also commonly viewed as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they often diversify reserves by purchasing Gold, helping to strengthen perceptions of both their economies and currencies. Substantial Gold holdings can bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, worth about $70 billion, marking the largest annual purchase since records began. Among emerging economies, the central banks of China, India and Turkey are rapidly building their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold is inversely correlated with them. A fall in the Dollar typically supports Gold, allowing investors and central banks to diversify their holdings during unsettled periods. The precious metal also tends to move in the opposite direction to risk assets: stock market rallies generally put pressure on Gold prices, whereas selling in riskier markets tends to support them.

Which factors influence Gold prices?

A variety of factors can drive Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can send prices sharply higher. Since Gold pays no yield, lower interest rates usually favour it, while a higher cost of money generally weighs on the metal. Most price movements, however, hinge on the performance of the US Dollar (USD), as Gold is quoted in dollars (XAU/USD). Dollar strength typically restrains Gold prices, while a weaker Dollar is likely to lift them.