Gold prices are edging higher after a sharp selloff, with bullion attempting a modest recovery from the previous session's nearly 3% drop. The rebound remains limited as stronger U.S. inflation data reinforces expectations of a Federal Reserve rate increase next month, raising pressure on non-yielding assets.
Highlights
- Spot gold rises 0.3% to $4,043.62 per ounce after a 3% drop, with U.S. gold futures for December up 0.5% to $4,051.10.
- Odds of a half-point Fed rate hike in December surge to 100% after hotter-than-expected U.S. inflation data and hawkish Fed commentary.
- Despite Middle East inflation boosts, higher U.S. interest rates and persistent hawkish Fed guidance weigh on gold's near-term investment appeal.
Inflation data and Fed signals restrain bullion
As reported by Reuters, spot gold is up 0.3% at $4,043.62 per ounce by 0303 GMT after falling nearly 3% to $4,017.21 on Tuesday, while U.S. gold futures for December delivery gain 0.5% to $4,051.10.Matt Simpson, senior market analyst at StoneX, says the move reflects a technical retracement after heavy losses, as bearish traders book profits and wait for the next catalyst. He adds that hot consumer price data and hawkish comments from Federal Reserve officials have revived expectations for tighter monetary policy.
The odds of a half-percentage-point Fed rate hike next month surge after data shows U.S. inflation accelerated more than expected in October and policymakers signal willingness to tighten policy more aggressively. Traders now price in a 100% probability of a rate increase in December, up from 84% before the data, according to CME's FedWatch tool.
Higher rates cloud near-term outlook for gold
Although gold is typically viewed as a hedge against inflation, higher interest rates raise the opportunity cost of holding bullion because it does not offer a yield. That dynamic is reducing its appeal to investors even as inflation remains elevated.Soni Kumari, an analyst at ANZ, says positive developments in the Middle East would be supportive for gold from an inflation perspective, but the near-term macro backdrop still does not look constructive for the metal. Federal Reserve Vice Chair for Supervision Michelle Bowman and Philadelphia Fed President Anna Paulson also stress that lowering inflation remains the central bank's priority and that more rate increases are still ahead.
Among other precious metals, spot silver climbs 1.7% to $52.38 per ounce, while palladium gains 1.3% to $1,038.38.
We have also looked at UBS’s longer-term Fed tightening outlook extending rate hikes into 2027 amid persistent inflation pressures.
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