Near $4,000: Gold retreats as US PCE data bolsters odds of a December Fed hike

$4,015 in focus as gold slides in early Asian trading on Friday.
September brought an acceleration in US PCE inflation.
74.9% odds of a December Fed interest rate hike are priced in by traders.

$4,015 is the level gold (XAU/USD) has fallen towards in early Asian trading on Friday. US inflation figures have strengthened expectations of a Federal Reserve (Fed) interest rate hike later this year, putting the precious metal under pressure.

0.5% was the September increase in the US Personal Consumption Expenditures (PCE) Price Index, following August’s 0.3% gain. Thursday’s release from the Commerce Department’s Bureau of Economic Analysis matched market expectations.

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David Meger, director of metals trading at High Ridge Futures, pointed to expectations for a December rate increase: “A stubbornly high inflationary outlook that continues to run hotter than Fed targets is paving the way for thoughts that the Fed will raise rates at the December meeting. That’s ... the main drag on the gold market right now, and today’s ‌PCE report did nothing to allay that fear,” he said.

At Wednesday’s October policy meeting, the Federal Open Market Committee (FOMC) kept interest rates within the 3.75% to 4% range. Although Fed Chair Kevin Warsh gave no guidance on the outlook, he acknowledged that price stability had yet to be achieved. "We're working on it," Warsh said.

According to the CME FedWatch tool, the probability markets assign to a US rate hike in December now stands at about 74.9%. For gold, which pays no yield, higher interest rates raise the opportunity cost of holding the metal.

Gold holds firm as industrial precious metals face pressure

Gold’s relative strength following the latest FOMC meeting stands in contrast to the difficulties facing industrial metals. TD Securities says "industrial metals struggle" and observes that "while gold remains fairly resilient post-FOMC, industrial precious metals are skewing to the downside, with silver and PGMs materially underperforming as macro headwinds and the prospect of tightening policy weigh on demand outlooks." Investors’ preference for gold over precious metals with greater cyclical exposure highlights the more defensive positioning across the complex.

2% price stability commitment from Warsh keeps Dollar bulls watchful

A 7/10 FXS Speechtracker score, matching the established baseline, places Warsh’s press conference firmly in hawkish territory. It indicates continuity, not a change of regime. His insistence that “ensuring price stability is not about a fixed date on a calendar” points to a data-dependent approach centred on outcomes. The commitment to fully “quashing inflation” remains intact, even as the Fed says “new monetary medicine” and September’s withdrawal of accommodation are starting to work. Confidence that inflation expectations are “going the right way” was repeated alongside a firm 2% PCE target and “no ifs and or buts” on achieving price stability. Together, these messages suggest the Fed is not yet considering an early policy pivot, a setting that typically favours the Dollar against the Euro and Yen.

A +14.39-point rise has taken the FXS Fed Sentiment Index to 141.89, extending its distance above the 100 neutral line. The move reinforces the hawkish signal and confirms a more restrictive tone than recent Fed communications. Alongside the unchanged 7/10 FXS Speechtracker score, the higher index reading tells FX markets that the policy bias still favours keeping conditions tight. Such a backdrop tends to support the Dollar against its major counterparts.

100-day SMA caps gold: Technical outlook stays bearish

Trading beneath both the 100-day simple moving average (SMA) and the Bollinger middle band leaves XAU/USD with a bearish near-term outlook on the daily chart. Spot is hovering just above the lower Bollinger band. At 38.23, the Relative Strength Index (RSI) remains in bearish territory without reaching oversold levels, suggesting continued downward pressure rather than capitulation.

Around $3,995, the lower Bollinger band provides immediate support and a possible pause for sellers. The first resistance on a rebound is the middle Bollinger band near $4,115. Beyond that sit the 100-day SMA at $4,215 and the upper Bollinger band at $4,230. Recovering these levels would be needed to temper the bearish outlook and create scope for a more durable recovery.

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

Gold: Key questions

What attracts investors to Gold?

Widely used as both a store of value and a medium of exchange, gold has been central to human history. Today, its appeal extends beyond its lustre and use in jewellery. The metal is broadly regarded as a safe-haven asset, making it a favoured investment in periods of turbulence. Its independence from any particular issuer or government also underpins its widespread role as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of gold are central banks. To support their currencies during unsettled periods, they typically diversify reserves and purchase the metal, bolstering perceptions of economic and currency strength. Substantial gold holdings can strengthen confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, worth around $70 billion. That was the largest annual purchase on record. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their gold reserves.

How does Gold move relative to other assets?

The US Dollar and US Treasuries, both leading reserve and safe-haven assets, are inversely correlated with gold. A decline in the Dollar typically lifts gold, helping investors and central banks diversify their holdings during turbulent periods. Risk assets also tend to move in the opposite direction to the metal. Stock market gains generally put gold prices under pressure, while selling in riskier markets tends to support the precious metal.

Which factors drive Gold prices?

A broad set of influences can move gold prices. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can trigger a rapid rise. Because gold provides no yield, lower interest rates tend to support it, whereas higher borrowing costs usually weigh on the metal. Most price movements, however, hinge on the performance of the US Dollar (USD), since gold is priced in dollars (XAU/USD). Dollar strength tends to restrain gold prices; a weaker Dollar is more likely to lift them.