Below $4,000: Gold retreats as bets on a Fed rate hike increase

$3,985 is gold’s approximate level after a sharp fall in early Asian trading on Thursday.
Expectations of a Fed rate increase at its December policy meeting firmed after US CPI inflation exceeded forecasts.
Friday brings the closely watched US October PPI inflation release.

$3,985 is gold’s approximate price following a steep decline. In early Asian trading on Thursday, Gold price (XAU/USD) extends its losses as stubborn inflation compels the US Federal Reserve (Fed) to keep monetary policy on a tightening course.

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October’s US Consumer Price Index (CPI) increased 0.4% MoM, compared with a 0.6% gain in September, according to Tuesday’s report from the Labor Department's Bureau of Labor Statistics. Above the expected 0.3%, the reading reinforced expectations of a Fed interest rate increase 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 an excessively strong CPI reading would lead him to back more aggressive action, expectations of a 50-basis-point December rate increase gained traction. By increasing the appeal of interest-bearing assets, higher rates generally put pressure on the precious metal.

According to the CME FedWatch Tool, a 25 bps increase is fully priced in. The chance of a 50 bps rise, meanwhile, climbed to 12.7% from 0% before the release.

Friday’s US October Producer Price Index (PPI) inflation figures will provide traders with further direction. A stronger-than-expected report could leave gold facing near-term selling pressure.

+5.06% for gold as risk aversion pressures equities and supports bonds

A favourable week for gold accompanied broader equity-market risk aversion, Deutsche Bank analysts note. Although "credit was actually fairly flat on both sides of the Atlantic," they observe that 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." On global sovereign yields, they add that, "along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world." The cross-asset picture nevertheless remained mixed heading into the latest session. 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," highlighting that contrast.

8/10 Goolsbee score signals a more hawkish Fed inflation message

An 8/10 FXS Speechtracker score, well above the 6.8/10 historical average, marked a notably more hawkish message from the Fed’s Goolsbee. It reflected mounting concern over persistent price pressures. His description of the latest CPI as “borderline disturbing,” alongside the warning that services inflation is “not coming down” and that “we have a real inflation issue on our hands”, points to greater unease over underlying inflation, despite a labour market characterised as steady and stable. His repeated focus on tackling persistent inflation and preventing inflation expectations from becoming unanchored strengthens the bias towards restrictive policy, while retaining scope for further action. Such conditions generally favour the Dollar over lower-yielding currencies.

A gain of 1.69 points took the FXS Fed Sentiment Index to 145.61, comfortably above the neutral 100 level and firmly within hawkish territory. Together, the high index reading and an FXS Speechtracker score above its historical baseline suggest that markets should keep pricing in a higher-for-longer Fed policy path. That combination typically supports the Dollar while weighing on risk-sensitive currencies.

100-day SMA caps gold: Technical Analysis remains bearish

Trading below both the 20-day Bollinger simple moving average and the 100-day simple moving average, XAU/USD faces pronounced selling pressure on the daily chart. These levels reinforce the near-term bearish bias. Prices are consolidating within the lower half of the Bollinger envelope. At 43, the 14-day Relative Strength Index remains beneath its midpoint, indicating muted bearish momentum without an oversold reading.

The Bollinger middle band, around $4,055, provides the first upside resistance. Further barriers stand at the 100-day SMA of $4,200 and the upper Bollinger band near $4,215. Below current prices, the lower Bollinger band close to $3,895 marks the next significant support area. A further decline towards that level may prompt sellers to realise some profits.

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

Gold: Key questions answered

What attracts investors to Gold?

As a widely used store of value and means of 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 turmoil. 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 underpin their currencies during unsettled periods, they typically diversify reserves and purchase Gold, 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 of Gold, valued at around $70 billion, in 2022. No higher annual purchase has been recorded. Emerging-market central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold is inversely correlated with them. A declining Dollar generally accompanies a rise in Gold, allowing investors and central banks to diversify holdings during turbulent periods. Gold also has a negative correlation with risk assets: stock-market gains tend to depress its price, whereas selling in riskier markets generally benefits the precious metal.

Which factors drive Gold prices?

Many influences can shift Gold prices. Its safe-haven role means geopolitical turmoil or concern over a severe recession can trigger a rapid price increase. Gold pays no yield, so falling interest rates tend to support it, while more expensive borrowing usually weighs on the metal. The US Dollar (USD) nevertheless drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength typically restrains Gold prices; a weaker Dollar is more likely to lift them.