Gold slips below $4,150 as Fed rate outlook weighs on bullion

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Gold slips below $4,150

Highlights

Gold declines on Fed rate bets.
December Fed rate hike remains likely.
Physical demand limits losses.

Spot gold traded at $4,148.88 an ounce, down 0.29%, while COMEX gold futures stood at $4,169.60, down 0.18%. The decline followed comments from New York Fed President John Williams, who indicated that one more rate increase may be appropriate this year but further tightening might not be needed in 2027, Bloomberg reports.

Fed signals a possible end to tightening

Williams' remarks offered investors a clearer view of the potential limits of the current tightening cycle. The Fed raised interest rates last month for the first time since 2023 as policymakers responded to renewed inflation pressures, including those stemming from higher energy costs.

Interest-rate markets assign little probability to another increase in October but indicate roughly a 90% chance of a December move. That would extend the current tightening cycle while leaving open the possibility that borrowing costs stabilize next year.

U.S. Treasury yields edged lower following Williams' comments, providing some support for bullion. Because gold generates no interest income, rising bond yields generally make it less attractive relative to interest-bearing assets.

Investors are awaiting Wednesday's U.S. consumer price index report for further evidence of whether inflation remains persistent enough to justify another increase. A stronger reading could reinforce expectations of tighter policy, while softer figures may reduce pressure on precious metals.

Physical demand absorbs speculative selling

Gold has remained relatively resilient despite substantial selling by trend-following investment funds. Deutsche Bank metals strategist Daniel Ghali identified strong physical demand as an important counterweight, with commercial and other market participants helping absorb algorithm-driven selling.

That support has prevented recent liquidation from producing a more pronounced decline. Retail investors, meanwhile, have remained largely on the sidelines, leaving institutional positioning and physical purchases as important influences on short-term price movements.

Energy costs keep inflation risks elevated

The Middle East conflict remains another source of uncertainty for gold. Renewed attacks on shipping routes have threatened energy supplies, keeping oil prices elevated and raising concerns that higher fuel costs could prolong inflation.

For investors, the immediate focus is whether the next inflation report changes expectations for December's Fed meeting. Persistent price pressures would strengthen the case for additional tightening, potentially supporting Treasury yields and the dollar.

However, if inflation begins to ease and physical demand remains firm, gold could find support even before the Fed formally ends its tightening cycle. The balance between inflation risks and expectations for future borrowing costs is likely to determine the metal's near-term direction.

We also reported Pakistan gold prices fall with global bullion decline.

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