Below $3,900: Gold drops to over one-year low on inflation concerns ahead of US PPI data

$3,880 is in view as gold slumps in early Asian trading on Friday.
Expectations of higher interest rates strengthened as inflation concerns persisted and Fed officials delivered hawkish remarks.
Friday’s focus turns to US PPI inflation figures for October.

$3,880 marks a low for gold (XAU/USD) not seen in more than a year. Prices have fallen to around that level in Friday’s early Asian session, under pressure from lingering US inflation concerns and expectations of higher interest rates. Due later on Friday, the US October Producer Price Index (PPI) report will provide further signals for traders.

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

Hopes for 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 news sent oil prices higher, intensifying 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 gained further support from this week’s stronger-than-expected US Consumer Price Index (CPI) inflation figures. A 50-basis-point increase should be considered if core inflation stays elevated, according to Fed Governor Christopher Waller.

The probability markets assign to a 50-basis-point hike has climbed to 14.5%, compared with zero ahead of Tuesday’s inflation release.

Friday’s US PPI figures will offer the next indication of inflation trends and the US central bank’s interest-rate decision. Forecasts point to headline PPI growth of 6.6% YoY in October. Core PPI is expected to rise 5.0% YoY over the same reporting period.

+5.06% weekly gain: Gold benefits from risk aversion as credit holds steady and bonds diverge

Despite largely unchanged credit markets, gold benefited from defensive sentiment in equities. Deutsche Bank analysts describe “credit was actually fairly flat on both sides of the Atlantic,” while characterising gold’s performance as “a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August.” On sovereign debt, 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 moves nevertheless remained mixed. Deutsche Bank notes that “the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type.”

8.3/10 hawkish score: Daly’s AI inflation concerns support Dollar upside

At 8.3/10 on the FXS Speechtracker, Daly’s speech is distinctly more hawkish than the historical average of 6.5/10. Persistent inflation and a preference for further tightening feature repeatedly. Her key comments present AI as a structural source of productivity gains and possible future price pressures, rather than the principal cause of current inflation. That framing reinforces a picture of resilient growth, steady labour markets and sticky services inflation requiring continued policy restraint. Her willingness to consider a September hike, alongside the assessment that “inflation pressure is up, not down”, highlights a stance still inclined towards further rate increases. This supports the Dollar against the Euro and Yen.

A 1.01-point increase takes the FXS Fed Sentiment Index to 147.55, well within hawkish territory and aligned with the high FXS Speechtracker reading. The shift indicates that markets should read Daly’s remarks as strengthening expectations of tighter policy for longer. Such conditions typically support the Dollar against other major currencies.

Technical Analysis: 100-day SMA caps Gold’s bearish outlook

Below both the 100-day Simple Moving Average (SMA) and the Bollinger Bands (20) middle band, spot XAU/USD retains a bearish short-term bias on the daily chart. Trading just above support at the lower Bollinger band indicates that selling pressure still dominates. Meanwhile, the Relative Strength Index (14) stands at 37.64, beneath the neutral 50 mark. This points to limited bullish conviction, rather than outright oversold conditions.

The Bollinger Bands middle band, near $4,038, provides the first upside barrier. Beyond it lie the 100-day SMA around $4,200 and a further technical ceiling at the upper Bollinger band of $4,205. Immediate downside support sits at $3,870, matching the lower Bollinger band. A sustained breach of that area would leave room for a deeper decline; conversely, a recovery above the middle band is needed to temper the prevailing bearish bias.

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

Gold: key questions

Gold’s role in investment portfolios

Widely used to preserve wealth and facilitate 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: an investment considered attractive during periods of turbulence. Its independence from any particular issuer or government also underpins its widespread use as a hedge against inflation and currency depreciation.

1,136 tonnes in 2022: Central banks lead Gold holdings

The largest holders of gold are central banks. To support their currencies during unsettled periods, they typically diversify reserves and purchase gold, strengthening perceptions of both their economies and currencies. Substantial gold reserves 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 around $70 billion. No higher annual purchase has been recorded. Emerging-market central banks, including those in China, India and Turkey, are rapidly expanding their gold reserves.

Gold’s inverse relationships with other assets

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and gold is inversely correlated with them. A weaker Dollar generally accompanies higher gold prices, allowing investors and central banks to diversify holdings during turbulent periods. Risk assets also tend to move in the opposite direction to gold. Stock-market gains typically put pressure on gold prices, whereas selling in riskier markets tends to support the metal.

Key drivers of Gold prices

A broad set of influences can shift gold prices. Its safe-haven appeal means geopolitical instability or concern over a deep recession can trigger rapid gains. Because gold offers no yield, lower interest rates generally support it, while higher borrowing costs usually weigh on the metal. Most price moves, however, depend on the US Dollar (USD), since gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain gold prices; a weaker Dollar is more likely to lift them.