Inflation concerns weigh on gold as it slides below $3,900 to over one-year low ahead of US PPI data

Gold comes under sharp selling pressure, sliding towards $3,880 in early Asian trade on Friday.
Expectations of higher interest rates strengthened as inflation concerns combined with hawkish remarks by Fed officials.
Friday’s focus will be on the US PPI inflation figures for October.

Selling pressure pushes Gold (XAU/USD) to around $3,880 in early Asian trading on Friday, its lowest level in more than a year. The precious metal remains under strain from lingering concerns over US inflation and expectations of higher interest rates. For further direction, traders await the US October Producer Price Index (PPI) report due later on Friday.

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

Hopes of an agreement to end the conflict faded on Thursday after US President Donald Trump said the US did not need a deal with Iran. The remarks triggered a surge in oil prices, adding to inflation concerns.

David Meger, director of metals trading at High Ridge Futures, said: "Higher energy prices continue to warrant a hawkish Fed, and a hawkish Fed is an environment of higher interest rates and hence a headwind for the yellow metal,"

Expectations of a December Fed rate hike have also strengthened following this week’s stronger-than-anticipated US Consumer Price Index (CPI) inflation reading. If core inflation stays elevated, a 50-basis-point increase should be considered, according to Fed Governor Christopher Waller.

Before Tuesday’s inflation release, markets assigned no chance to a 50-basis-point increase; that probability now stands at 14.5%.

Further guidance on inflation and the US central bank’s interest-rate decision will come into focus with Friday’s US PPI release. Forecasts point to headline PPI growth of 6.6% YoY in October, alongside a 5.0% YoY increase in core PPI for the same reporting period.

How is risk-off sentiment lifting Gold amid flat credit and mixed bond moves?

The risk-off mood in equities supported Gold even as credit markets held steady. Deutsche Bank analysts observe that “credit was actually fairly flat on both sides of the Atlantic,” while describing the outcome as “a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August.” On sovereign yields globally, they add that “along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world.” Core rate movements nevertheless remained mixed, with Deutsche Bank noting that “the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type.”

Can Daly’s hawkish view on AI inflation risks extend Dollar gains?

A score of 8.3/10 on the FXS Speechtracker places Daly’s speech well above the historical average of 6.5/10, reflecting a distinctly hawkish stance. Repeated references to persistent inflation accompany a preference for further tightening. Her central remarks portray AI as a structural force behind productivity and possible future price pressures, rather than the principal cause of current inflation. This supports a picture of robust growth, steady labour markets and stubborn services inflation that continues to require restrictive policy. A willingness to support a September hike, together with the assessment that “inflation pressure is up, not down”, leaves the policy bias tilted towards further rate increases, lending support to the Dollar against the Euro and Yen.

Reinforcing the high FXS Speechtracker reading, the FXS Fed Sentiment Index advances 1.01 points to 147.55 and remains firmly hawkish. The rise suggests markets should read Daly’s remarks as strengthening expectations of tighter policy for longer, an environment that generally supports the Dollar against major currencies.

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

With spot prices trading below both the 100-day Simple Moving Average (SMA) and the middle band of the Bollinger Bands (20), the daily XAU/USD chart continues to signal a bearish near-term bias. Trading just above support at the lower Bollinger band points to persistent downward pressure. Meanwhile, the Relative Strength Index (14) reads 37.64, below the neutral 50 mark, indicating limited bullish conviction rather than outright oversold conditions.

The first hurdle to a recovery lies near $4,038 at the middle Bollinger band, ahead of the 100-day SMA around $4,200. Above these levels, the upper Bollinger band at $4,205 provides a further technical ceiling. Immediate downside support sits at $3,870, in line with the lower Bollinger band. A sustained breach of this area would leave scope for a sharper decline; easing the prevailing bearish tone would require a recovery above the middle band.

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

Gold: Frequently asked questions

What makes Gold an investment choice?

Used extensively as both a store of value and a medium of exchange, Gold has occupied an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, or a worthwhile investment in periods of uncertainty. Its independence from any particular issuer or government also underpins its widespread appeal as a hedge against inflation and currency depreciation.

Which institutions are the largest Gold buyers?

The largest holders of Gold are central banks. To support their currencies during uncertain periods, they typically diversify their reserves by purchasing Gold, strengthening perceptions of 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 of Gold, valued at around $70 billion, in 2022. No higher annual purchase has been recorded since records began. Emerging-economy central banks, including those in 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, major reserve and safe-haven assets, have an inverse relationship with Gold. A declining Dollar typically lifts Gold, allowing investors and central banks to diversify their holdings during uncertain periods. Risk assets also tend to move in the opposite direction to Gold: stock-market gains generally put pressure on its price, whereas selling in riskier markets usually supports the precious metal.

Which factors drive Gold prices?

A broad range of influences can move Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns about a severe recession can prompt a rapid price rise. Since Gold offers no yield, lower interest rates generally support it, while higher borrowing costs tend to weigh on the precious 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.