【TMGM Financial Recap】As Inflation Surges, Gold Falls Back Below $4,000 Under Pressure From a Stronger Dollar and Firm Rate Hike Expectations!

US October CPI exceeded expectations, combining with hawkish Federal Reserve commentary to lift the US Dollar Index to its highest level in 18 months. Against that backdrop, spot gold closed below $4,000 on Wednesday after losing a further 1.1%, extending Tuesday’s fall of nearly 3%. A December rate hike became fully priced in, with the probability reaching 100%, while a larger, 50-basis-point increase also attracted stronger expectations. Both developments placed considerable pressure on gold. Oil’s advance heightened inflation concerns, adding to expectations that the Fed would tighten policy further.

For gold bulls, the more concerning signal came from Fed officials, whose remarks were hawkish both before and after the inflation release. Fed Governor Christopher Waller made clear ahead of the report that an October core inflation reading of 0.3% would lead him to consider a half-percentage-point increase at the December meeting. Elevated inflation also drew serious concern from Dallas Fed President Lorie Logan, who indicated her support for a substantial rate rise. Market pricing now puts the likelihood of a December Fed increase of at least 25 basis points at 100%; a month earlier, it stood at around 70%. For a larger, 50-basis-point rise, the implied probability reached 12.9%, having been zero before the CPI announcement.

December and March rate rises are now expected by Goldman Sachs, which also sees three possible increases in 2027. Deutsche Bank’s forecast is for successive hikes in December, January and March. These higher-rate expectations explain the main pressure on gold prices: as interest rates rise, so does the opportunity cost of owning gold, an asset that generates no interest.

The geopolitical contribution to gold’s recent price action has been less straightforward. Oil rebounded from a two-month low on Wednesday as supply concerns followed a statement by Iran’s security chief that the country would not permit any enriched nuclear material to be moved abroad. Alongside this, US Vice President JD Vance is taking shape as the lead negotiator in talks with Iran. He is weighing direct discussions with senior Iranian security officials in an effort to bring the war to an end. Negotiations continuing alongside hostilities leave a stalemate in which the geopolitical risk premium is unlikely to fade completely. Yet expectations of Fed rate increases remain the dominant influence on sentiment: the pressure exerted by rising interest rates has clearly more than offset demand for gold as a safe haven.

Some underlying support remains available to gold despite the build-up of short-term pressures. A solid foundation for prices comes from continued substantial purchases by China, the world’s largest gold consumer, and central banks in other countries. Because central bank buying often responds less to short-term price movements, the strategic allocation aims of these official-sector buyers suggest that purchases will persist through price declines.

Market Insight: Gold Seeks a Base as Fed Tightening Is Priced In

Gold’s central dilemma lies in the extent to which prices already incorporate expectations of additional Fed tightening. Markets regard a 25-basis-point rise in December as almost certain, and assign an increasing probability to a 50-basis-point move. Much of the downward pressure over the near term may consequently already be priced in. A widely anticipated rate increase generally has a more limited effect when it actually occurs; the unresolved question is how long tightening will last. An easing of the immediate pressure on gold looks unlikely to come readily. Even so, central bank purchases provide structural support, while a residual geopolitical risk premium could make a deeper decline less likely. The more probable course is for gold to trade unevenly while building a base, with a reassessment to follow once the rate rise has occurred.