Gold Prices Fall Following Higher-Than-Expected US Inflation Data

Gold prices fell more than 2% on Tuesday after hotter-than-expected United States inflation data lifted the dollar and Treasury yields, while reinforcing expectations of a larger interest rate hike from the Federal Reserve this year. Spot gold dropped 2.5% to $4,035.15 an ounce, and U.S. gold futures for December delivery fell 1.7% to $4,043.70 an ounce.

The Labor Department’s Bureau of Labor Statistics reported that the Consumer Price Index rose 0.4% last month following a 0.6% advance in September. Economists surveyed by Reuters had anticipated a 0.3% month-on-month increase. Edward Meir, an analyst at Marex, stated, "I think it's a bit of a short-term negative for gold because the inflation numbers were running a little higher than expected."

Following the inflation report and remarks from Fed Governor Christopher Waller indicating support for more aggressive action if inflation ran too hot, bets on a 50-basis-point interest rate hike in December began to build. According to CME's FedWatch Tool, a 25-basis-point increase is fully priced in, while the probability of a 50-basis-point hike rose to 10% from zero prior to the release of the data.

The strengthening of the U.S. dollar against a basket of major currencies and the climb in Treasury yields created downward pressure on bullion. A stronger dollar makes gold more expensive for international buyers, whereas higher Treasury yields increase the opportunity cost of holding non-yielding assets.

Despite the decline, analysts noted that the precious metal maintains a position above key psychological levels. Standard Chartered remarked in a note that gold "continues to trade above the critical $4,000/oz mark," adding that crude oil, inflation risks, and equity markets continue to influence trading as attention remains fixed on the upcoming December Federal Reserve meeting.

Meanwhile, international developments in the bullion market continued to unfold as the Monetary Authority of Singapore announced plans to launch a vaulting service for foreign central banks and reduce taxes on select companies in the gold market to strengthen its position in the precious metals trade. In other precious metals, spot silver declined 3.6% to $51.49 an ounce, and palladium decreased 1.2% to $1,029.12.