Gold Set for Weekly Drop

Gold prices recovered above $3,900 per ounce on Friday after declining for three consecutive sessions, but remained on track for a sharp weekly loss as a stronger US dollar and rising Treasury yields reflected growing expectations of more aggressive Federal Reserve rate hikes. The shift in market sentiment followed hotter-than-expected US consumer inflation data and hawkish comments from Fed officials, with some policymakers suggesting that a larger 50-basis-point rate increase may be necessary to contain inflation. Markets are currently pricing in around an 85% probability of a 25 bps rate hike in December, as well as a 15% chance of a larger 50 bps increase. Traders are also increasingly anticipating additional rate hikes next year. Meanwhile, gold faced further downward pressure from recovering oil prices after President Donald Trump stated that the US no longer needs a deal with Iran.

Gold prices dropped more than 2.5% to around $3,870 an ounce on Thursday, retreating to levels not seen in months, pressured by a stronger US dollar, expectations of further monetary tightening by the Federal Reserve and rising oil prices. Stronger-than-expected US consumer inflation data for October, released on Tuesday, boosted the dollar to a 19-month high as traders increased bets on further Fed rate hikes. Meanwhile, renewed oil price gains added to inflation concerns after President Donald Trump said the US did not need a deal with Iran and redirected Vice President JD Vance towards domestic priorities, away from negotiations with Tehran. According to CME’s FedWatch Tool, markets are pricing in nearly a 90% chance of a 25-basis-point rate hike in December, while the probability of a larger 50-basis-point increase has risen to around 10%, from zero before the inflation data.

Gold weakened below $4,000 an ounce on Thursday, sliding for the third straight session as a stronger US dollar weighed on the precious metal. The dollar gained support from hotter-than-expected US inflation figures and increasingly hawkish comments from Federal Reserve officials, reinforcing expectations of further interest rate increases. Fed Governor Christopher Waller indicated that a 50-basis-point hike in December may be necessary, while Dallas Fed President Lorie Logan supported at least two additional 25-basis-point increases to address persistent inflationary pressures. Markets are currently pricing in approximately a 91% probability of a rate hike next month, with further increases in January and potentially April also being factored in. Investors are now turning their attention to upcoming US economic releases, including weekly jobless claims, existing home sales and producer inflation data, for further indications of the Fed’s monetary policy outlook.