Gold falls as US inflation data boosts bets on Fed hike

what happened

Gold dropped roughly 1% on Thursday after US inflation figures came in hotter than expected. The Personal Consumption Expenditures index rose faster in September, driven by gasoline and other goods, which strengthened expectations of a Federal Reserve rate increase in December. CME Group's FedWatch Tool, cited by Reuters, shows traders pricing in about an 83% chance of that move.

Spot gold slipped to $4,024.10 per ounce, and December US futures lost 0.4%. Spot silver fell 2.7%, platinum dropped 3.5% and palladium slid 0.7%. All three metals are headed for a second straight monthly decline. Reuters also reported that the Fed kept rates unchanged on Wednesday, deferring decisions until after next week's US midterm elections.

Separately, the European Central Bank kept rates unchanged and warned of rising inflation risks from surging energy costs. Christine Lagarde will step down as ECB president on February 7, the central bank said.

why it matters

Gold pays no interest, so higher rates raise the opportunity cost of holding it, and investors may favor bonds instead. Markets are now watching energy prices in the Middle East, since they feed into inflation and the outlook for Fed policy. The US elections on November 3 could also shape fiscal policy and investor sentiment.

market impact

Gold and precious metals: rising rate-hike expectations pressure non-yielding metals

• ▼Gold pressure down — expectations of a Fed rate hike raise the opportunity cost of a non-yielding metal
• ▼Silver pressure down — tighter monetary policy expectations weigh on non-yielding precious metals
• ▼Platinum pressure down — stronger rate expectations reduce appetite for precious metals

tags

instruments