$4,000: Gold edges below as elevated US yields lift odds of a December Fed hike

Gold retreats under $4,000 as losses stretch into a second day.
US Core CPI stays at 0.3% MoM, beating forecasts for the third consecutive month.
87% probability of a December Fed hike accompanies US Treasury yields at 5%.

$3,999 is the latest Gold (XAU/USD) price, down 0.70%. Wednesday marks a second consecutive day of declines as traders fully price in a Federal Reserve (Fed) rate increase. Stronger-than-forecast US inflation and hawkish remarks from Fed policymakers are driving those expectations.

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High US inflation and rising Treasury yields deepen Gold losses as Fed stays hawkish

0.3% MoM core inflation was the focus of the latest United States (US) Consumer Price Index (CPI) report. The reading held at that level for a third consecutive month, exceeding the 0.2% forecast. Fed Governor Christopher Waller had warned that he would favour a 50 bps rate increase if core inflation reached 0.3%. Investors responded by fully pricing in a 25 bps hike at the December meeting. Headline CPI also surpassed expectations: October’s 0.4% MoM rise was below the previous 0.6% but above the 0.3% estimate.

An 87% probability of a 0.25% Fed rate increase is reflected in market pricing, according to the CME FedWatch Tool. The remaining 13% is assigned to a larger 0.50% hike.

Bullion consequently slipped. As a non-yielding asset, the metal generally benefits when interest rates are lower.

5% was reached by the US 10-year Treasury yield after a rise of nearly 12 basis points, supporting the US Dollar. At 102.90, the US Dollar Index (DXY) is up 0.67% and at its highest level of the year. The index tracks the currency against a basket of six currencies.

Hawkish signals also came from other Fed officials. Philadelphia Fed Anna Paulson said the “Fed will move more aggressively if inflation landscape worsens,” and Dallas Fed Lorie Logan said rates could be raised “more rapidly.”

A more measured stance came from Fed Governor Michelle Bowman and Kansas City Fed President Jeffrey Schmid, although both highlighted elevated inflation. For Bowman, persistent inflation indicates that further work remains. Schmid pointed to worrying price trends beyond energy.

Thursday’s US calendar brings Initial Jobless Claims, housing figures and speeches from Fed officials. Friday follows with the Producer Price Index (PPI).

$4,000 breached: XAU/USD technical outlook points to further Gold losses

$4,000 has given way as sellers build momentum, bringing five-day lows into view. Gold has recorded a lower low for a third consecutive trading day, signalling scope for additional declines.

A bearish turn in the Relative Strength Index (RSI) also suggests that sellers have control.

$3,919, the November 4 daily low, provides the first support for XAU/USD. Next comes the October 30 year-to-date low of $3,879. On the upside, $4,000 is the initial key resistance. Breaking above it would open a path towards the psychological $4,050 area and then $4,100. Beyond those levels, attention turns to the confluence of the 50- and 100-day Simple Moving Averages (SMAs), at $4,177 and $4,200, respectively.

Gold: key questions answered

What attracts investors to Gold?

Widely used to preserve value and facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now broadly regarded as a safe-haven asset, or a good investment during 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 dominate Gold holdings?

1,136 tonnes of Gold, valued at around $70 billion, were added to central bank reserves in 2022, according to World Gold Council data. That was the largest annual purchase since records began. Central banks hold more Gold than any other group. To support their currencies during turbulent periods, they typically diversify reserves and purchase Gold, reinforcing perceptions of economic and currency strength. Substantial Gold reserves can bolster confidence in a country’s solvency. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold holdings.

How does Gold move relative to other assets?

An inverse relationship links Gold with the US Dollar and US Treasuries, both of which are leading reserve and safe-haven assets. Dollar weakness typically supports Gold, allowing investors and central banks to diversify holdings during unsettled periods. Risk assets also tend to move in the opposite direction to Gold: equity-market gains generally weigh on its price, while selling in riskier markets usually supports the precious metal.

Which factors drive Gold prices?

Numerous factors influence Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can trigger a rapid rise. Because Gold pays no yield, lower interest rates generally support it, whereas higher borrowing costs typically weigh on the metal. Nevertheless, the US Dollar (USD) drives most price movements because Gold is denominated in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar is more likely to lift them.