Gold Slides as Strong US Inflation Fuels Rate Hike Bets

Gold prices fell below $4,100 an ounce on Wednesday, hitting their lowest level since early August, as a stronger-than-expected US inflation report prompted markets to reassess the Federal Reserve’s rate outlook. US inflation rose to 3.7% year-on-year in September, above forecasts of 3.6%, driven by higher energy prices. Monthly CPI increased 0.6%, its biggest gain in five months, while core inflation also exceeded expectations, reaching 2.6% annually and 0.3% monthly. According to LSEG data, markets now see around a 50% chance of the Fed holding rates steady at its October meeting, down from more than 78% before the report. Meanwhile, the probability of a rate hike in December has risen to nearly 99%, from 88% previously. Although recent Fed communications had offered little indication of a back-to-back rate hike in October, the larger-than-expected increase in core CPI has brought that possibility back into focus, adding further pressure on non-yielding gold.

Gold traded near $4,150 an ounce on Wednesday, holding its losses from the last two sessions as investors awaited US consumer inflation data for clues on the Federal Reserve’s next policy move. Markets are currently pricing in roughly a 77% probability that the Fed will leave interest rates unchanged this month, while assigning an 88% chance of a rate hike in December. Meanwhile, New York Fed President John Williams indicated that one additional rate hike may be warranted this year, but further monetary tightening is unlikely to be necessary in 2027. Geopolitical tensions also remained in focus as oil prices extended gains amid escalating hostilities between Saudi Arabia and Iran-backed Houthi rebels, raising concerns over Middle East supply disruptions. Separately, the IMF warned of significant risks to global growth and financial stability stemming from a potential end to the AI investment boom, mounting debt levels, and a prolonged conflict in the Middle East.

Gold prices were little changed at around $4,180 an ounce on Tuesday as oil prices ended a three-session rally and the US dollar weakened, while expectations of an interest rate hike by the Federal Reserve this month remained subdued ahead of a busy week of US economic data releases. Investors are awaiting September’s US Consumer Price Index report on Wednesday, followed by the Producer Price Index and retail sales data on Thursday. Markets will also be watching Fed Chair Kevin Warsh’s appearance at the IMF-World Bank annual meetings on Friday for further clues on the central bank’s monetary policy outlook. According to CME’s FedWatch tool, traders are pricing in less than a 20% probability of a Fed rate hike this month, while the likelihood of an increase in December exceeds 85%. Meanwhile, Cleveland Fed President Beth Hammack said the central bank should move “relatively quickly” toward a more restrictive monetary policy stance to bring inflation under control.