Gold Slips Below $4,000 an Ounce as Hot Inflation Locks In Bets on a December Fed Hike

Gold fell below $4,000 an ounce on Wednesday, extending a two-day slide as hotter-than-expected inflation data cemented bets on a Federal Reserve rate hike in December.

Spot gold dropped 1.1% to $3,984.97 an ounce after climbing as high as $4,066.77 earlier in the session, CNBC reported. U.S. gold futures for December delivery fell nearly 1% to $3,991.40.

The slide followed a nearly 3% plunge on Tuesday, when gold fell to about $4,013 after the government reported that consumer prices rose 0.4% in October. Economists polled by Reuters had expected 0.3%.

Front-month Comex gold settled down $28.70, or 0.71%, at $3,992 an ounce, Dow Jones Market Data showed. That marked a two-day drop of $113, or 2.75%, the biggest since Oct. 30.

The settlement was gold’s lowest since Nov. 3 and left the metal nearly 25% below its record of $5,318.40, set on Jan. 29. Gold is down about 7.7% so far this year.

“CPI came out a little hotter than expected, and the market is interpreting that it warrants higher rates at the December meeting,” Bob Haberkorn, senior market strategist at StoneX, told Reuters.

Higher rates hurt gold because the metal pays no interest, making bonds and savings more attractive by comparison. A stronger dollar also makes dollar-priced bullion costlier for overseas buyers.

Rate-Hike Odds Climb

Fed Governor Christopher Waller had said before the report that a 0.3% rise in core inflation would lead him to consider a half-point hike in December. Core prices rose exactly 0.3%.

Markets now fully price in a quarter-point increase and put the chance of a half-point move at about 13%, according to the CME FedWatch tool, Kitco News reported.

Bart Melek, head of commodity strategy at TD Securities, expects gold to retest support near $3,900 an ounce as higher interest rates and a stronger dollar weigh on investment demand.

Fawad Razaqzada, market analyst at FOREX.com, told Kitco that a sustained break below the $3,942 to $4,000 range would open the door to the recent low near $3,870.

Not everyone is bearish. Haberkorn said that “there’s been strong buying in the third quarter of gold by central banks,” which has “kept the floor on gold despite the short-term fundamental news.”

For ordinary buyers, the drop is a reversal from early this year. At midday Wednesday, spot gold was down about 3.5% from a year earlier and about 4% from a month ago, USA Today reported.

Other metals moved the other way. Spot silver rose 0.4% to $51.69 an ounce, and palladium gained 0.5% to $1,030.70, CNBC reported.

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