Over 1% decline: Gold retreats on hawkish Fed comments ahead of US CPI

More than 1% lost in Gold as profit-taking and hawkish Fed remarks weigh ahead of US CPI.
50-basis-point December rate hike remains an option for Fed Governor Waller.
$4,061 area provides 20-day SMA support for XAU/USD; RSI points to neutral momentum.

Gold (XAU/USD) is down more than 1% on Tuesday. Profit-taking has erased much of the previous day’s advance, while hawkish comments from Federal Reserve (Fed) Governor Christopher Waller have added selling pressure. Markets await US consumer inflation figures at 13:30 GMT. XAU/USD is trading around $4,075 at the time of writing, below Monday’s high near $4,148.

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

Even if October inflation eased, Waller said he would “still support a 25 basis point increase” in December. If October core CPI registers “around 0.3% or higher.”, he said a “half-point Fed rate hike may be needed in December”. According to the CME FedWatch Tool, traders now fully price in a December increase of 25 basis points (bps).

For October, economists forecast a 0.3% MoM increase in the headline Consumer Price Index (CPI), compared with 0.6% in September. They also anticipate a slowdown in core CPI, which strips out food and energy, to 0.2% from 0.3%.

The US Dollar Index (DXY) has also recovered with support from Waller’s comments. It had lost 0.60% on Monday as prospects for US-Iran diplomacy drove crude prices down. Measuring the Greenback against a basket of six major currencies, the DXY now stands around 101.70 after touching an intraday low of 101.49.

Following Monday’s White House talks with Qatar’s prime minister, US President Donald Trump cited “positive momentum” towards ending the war with Iran. West Texas Intermediate (WTI) has since eased towards $83 a barrel, its weakest level since 31 August.

Near-term support for the Dollar remains the expectation of analysts at ING, who argue that “the dollar should stay supported by strong US growth, high inflation and a Fed threatening to tighten” further. Their assessment is that “our base case assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle.”

Higher interest rates increase the opportunity cost of owning non-yielding Gold, leaving the hawkish Fed outlook a continuing drag. An above-forecast CPI release could reinforce expectations of a December rate increase and strengthen the US Dollar. Conversely, a softer result could pressure the Greenback and ease the strain on Gold.

Technical Analysis: $4,000 in view below the 20-day SMA

Around $4,061, the 20-day Simple Moving Average (SMA) forming the Bollinger Bands’ middle line provides immediate support on the daily XAU/USD chart. Spot prices remain just above it, leaving the near-term bias neutral, with the upper band around $4,220 limiting gains. A Relative Strength Index (RSI) reading of about 49 reinforces the range-bound picture. Although the Moving Average Convergence Divergence (MACD) has moved firmly into positive territory, suggesting improving upward momentum, nearby resistance continues to restrict the advance.

The first upside hurdle is the upper Bollinger Band near $4,220. Beyond it, sellers could regain control at the more substantial horizontal resistance of $4,400. Initial downside support lies around $4,061 at the mid-Bollinger 20-day SMA, before the psychological and technical floor at $4,000. A deeper decline could bring the lower Bollinger Band near $3,902 into play, followed by the year-to-date low of $3,870.

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

Inflation: key questions

How is inflation measured?

The increase in the cost of a representative basket of goods and services is measured by inflation. Headline readings are generally reported as percentage changes month-on-month (MoM) and year-on-year (YoY). Food and fuel are excluded from core inflation because geopolitical developments and seasonal factors can make their prices more volatile. Economists concentrate on this core measure. It is also the measure targeted by central banks, whose mandate is to maintain manageable inflation, typically around 2%.

What does the Consumer Price Index (CPI) track?

Changes in the prices of a basket of goods and services over time are tracked by the Consumer Price Index (CPI). Readings are generally presented as percentage changes month-on-month (MoM) and year-on-year (YoY). Central banks target Core CPI because it removes volatile food and fuel components. Interest rates usually rise when Core CPI exceeds 2% and fall when it drops below 2%. As higher rates support a currency, stronger inflation generally leads to currency appreciation; weaker inflation tends to have the reverse effect.

How does inflation affect currency values?

A country’s currency tends to appreciate when inflation is high and weaken when inflation is low, despite what might initially seem logical. To tackle higher inflation, its central bank will normally increase interest rates. Those higher returns draw more international capital from investors seeking an attractive destination for their funds.

What does inflation mean for Gold prices?

Historically, investors sought Gold during periods of high inflation for its ability to retain value. They still often buy it as a safe haven during severe market turbulence, but that pattern does not apply most of the time. High inflation prompts central banks to raise interest rates to contain price pressures. Those higher rates weigh on Gold by increasing the opportunity cost of holding it rather than an interest-bearing asset or cash in a deposit account. Lower inflation, by contrast, tends to support Gold: it brings interest rates down and makes the metal a more attractive investment alternative.