Gold drops below $4,000 amid mounting bets on a Fed rate hike

• Early Asian trading on Thursday sees gold fall sharply towards $3,985.
• With US CPI inflation exceeding forecasts, expectations have strengthened for a Fed rate rise at its December policy meeting.
• Friday brings the US October PPI inflation release into focus.

Persistent inflation is forcing the US Federal Reserve (Fed) to retain its tightening stance, extending the decline in gold. During Thursday’s early Asian session, the gold price (XAU/USD) drops sharply towards $3,985.

October’s US Consumer Price Index (CPI) increased by 0.4% MoM, compared with a 0.6% rise in September, according to Tuesday’s report from the Labor Department's Bureau of Labor Statistics. Exceeding the 0.3% forecast, the reading reinforced expectations of a Fed interest rate rise next month.

StoneX Senior Market Strategist Bob Haberkorn said: “CPI came out a little hotter than expected, and the market is interpreting that it warrants higher rates at the December meeting,”

After Fed governor Christopher Waller indicated that he would back more aggressive action if CPI proved too hot, expectations began to build for a 50-basis-point Fed rate rise in December. By increasing the appeal of interest-bearing assets, higher rates typically weigh on the precious metal.

According to the CME FedWatch Tool, markets have fully priced in a 25 bps rate increase. The likelihood of a 50 bps move, meanwhile, climbed to 12.7% from 0% before the release.

Friday’s US October Producer Price Index (PPI) inflation figures will offer traders further direction and a potential fresh catalyst. A stronger-than-expected report could put the yellow metal under some selling pressure in the near term.

Gold benefits as risk aversion pressures equities and lifts bonds

A favourable week for gold contrasted with subdued credit markets, according to analysts at Deutsche Bank. They observe that "credit was actually fairly flat on both sides of the Atlantic," while the wider "risk-off tone in equities meant it was a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August." The analysts also note that, "along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world." Nevertheless, the cross-asset picture entering the latest session remains mixed, with Deutsche Bank commenting that "the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type,"

Goolsbee’s inflation concerns reinforce the Fed’s hawkish stance

An 8/10 FXS Speechtracker score, markedly above the historical average of 6.8/10, accompanied a notably more hawkish message from the Fed’s Goolsbee, highlighting mounting concern over persistent price pressures. Despite describing the labour market as steady and stable, his comments reveal increasing unease about underlying inflation. He characterised the latest CPI as “borderline disturbing,” said services inflation is “not coming down,” and stressed that “we have a real inflation issue on our hands”. His repeated emphasis on tackling persistent inflation and the danger of expectations becoming unanchored points to a preference for maintaining tight policy while keeping further action on the table. Such a backdrop generally favours the Dollar over lower-yielding currencies.

Following a 1.69-point increase to 145.61, the FXS Fed Sentiment Index remains comfortably above the neutral 100 threshold, signalling a firmly hawkish policy tone. Taken together, the elevated index and the above-baseline FXS Speechtracker score suggest that markets should keep pricing in a higher-for-longer Fed trajectory. That combination is usually supportive of the Dollar but weighs on risk-sensitive currencies.

Technical Analysis: Gold stays bearish beneath the 100-day SMA

Trading below both the 20-day Bollinger simple moving average and the 100-day simple moving average, XAU/USD continues to face clear downward pressure on the daily chart. Together, these indicators support a bearish near-term outlook. Prices are consolidating within the lower half of the Bollinger envelope, and the 14-day Relative Strength Index remains below its midpoint at 43. This suggests muted bearish momentum, though conditions are not oversold.

The Bollinger middle band, around $4,055, provides the first upside resistance. Beyond that lie the 100-day SMA at $4,200 and the upper Bollinger band near $4,215. Should the decline continue, the next significant support is the lower Bollinger band, currently close to $3,895, where sellers may consider taking some profits.

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