Hot US inflation drives Treasury yields above 5% as gold plunges towards $4,000

• After retreating from its daily high of $4,146, Gold falls sharply.
• A 0.3% MoM increase in US Core CPI strengthens expectations of additional Fed tightening.
• A 12-basis-point jump takes US 10-year Treasury yields to 5.012%.

A hot inflation report from the United States (US) prompted hawkish comments from Federal Reserve (Fed) officials anticipating further tightening, sending Gold (XAU/USD) sharply lower during Tuesday’s North American session. Having reached a peak near $4,146, XAU/USD is trading at $4,021 at the time of writing, a decline of nearly 3%.

Gold drops nearly 3% as persistent US inflation prompts hawkish Fed comments

October’s US Consumer Price Index (CPI) increased by 0.4% MoM. Although below the previous 0.6%, the reading exceeded the 0.3% forecast. Stripping out volatile items, Core CPI generally provides a clearer indication of inflation. It rose by 0.3% MoM, matching September’s reading but surpassing expectations of 0.2%, suggesting that progress on disinflation is stalling.

Fed Governor Christopher Waller had earlier indicated that he would back a 25-basis-point hike if core CPI pointed to an improvement in inflation. A reading of 0.3%, however, would lead him to favour a 50-basis-point increase. He added: “Hiking only 25 basis points would put our credibility at risk, a risk I am not eager to take.”

Some of Waller’s remarks were echoed by Dallas Fed President Lorie Logan, who said that “more rapid rate hikes possibly needed this winter,” and noted that the Fed remained 50 basis points below a “modestly restrictive level.”

According to the CME FedWatch Tool, money markets fully price in a 25-basis-point increase in December, with a 10% probability assigned to a 50-basis-point hike.

Against this backdrop, bullion slumped while the US Dollar Index (DXY) advanced nearly 0.70% to 102.36. The index measures the US currency against a basket of six currencies. Meanwhile, US Treasury yields climbed, with the 10-year T-note yield rising 12 basis points to 5.012%, as investors became increasingly confident that a December Fed rate hike was all but assured.

Oil prices, by contrast, remain broadly unchanged despite mounting speculation that Washington and Tehran could reach a ceasefire deal to end the conflict that began at the end of February.

Following the country’s Veterans Day holiday, the US economic calendar picks up on Thursday. Traders will be watching jobless claims, housing figures and remarks from Fed officials.

XAU/USD technical outlook: Gold falls towards $4,000 as further losses loom

Against the prevailing fundamental backdrop, Gold has fallen to a four-day low of $4,015, leaving sellers targeting a decisive move below the psychological $4,000 mark. The Relative Strength Index (RSI) points to a bearish shift in momentum, suggesting that further declines lie ahead.

A continuation of the bearish move requires Gold to break below $4,000. Should that happen, a move towards the 4 November daily low of $3,919 would be likely, with the 30 October year-to-date low of $3,870 next in view.

Conversely, a recovery above $4,050 by Gold buyers would bring $4,100 into focus. Clearing that level would pave the way for a recovery towards the next key resistance zone, where the 50- and 100-day Simple Moving Averages (SMAs) converge at $4,185 and $4,200, respectively.