Gold prices rebounded in Wednesday’s (Nov 11) trading session, following a decline spurred by high U.S. inflation data and hawkish remarks from several Federal Reserve officials. This recovery comes after gold plummeted 2.6% in the previous session, driven by intensifying expectations of a Federal Reserve interest rate hike.
The market now fully anticipates a 25-basis-point rate hike in December, with a small probability of a 50-basis-point increase. Higher interest rates weigh on gold—a non-yielding asset—while a stronger dollar makes the metal more expensive for holders of other currencies.
Despite the pressure from the prospect of higher interest rates, gold has managed to hold above the US$4,000 level. This suggests that the level is emerging as a key support area for investors. Furthermore, central bank gold purchases continue to bolster demand for the precious metal.
Downward pressure on gold was reinforced by Chicago Fed President Austan Goolsbee, who described the October inflation report as "concerning," noting that inflationary pressure remains an issue that must be addressed. Meanwhile, Dallas Fed President Lorie Logan stated that the Federal Reserve likely requires at least two more 25-basis-point rate hikes.
Separately, Fed Governor Christopher Waller has previously raised the possibility of a 50-basis-point hike in December should inflationary pressures remain elevated. Such stances indicate that the debate over how aggressively the Fed should act is ongoing, as inflation has yet to fully subside.