Gold prices weakened for the third consecutive session on Thursday (Nov 12), hitting a low not seen in over a week. Spot gold fell to approximately US$3,931.54 per ounce, pressured by a strengthening US dollar and growing expectations for a tightening of the Federal Reserve’s monetary policy.
Downward pressure intensified following the release of US Consumer Price Index (CPI) data for October, which showed inflation running higher than anticipated. This development pushed the US dollar to a 19-month high and led the market to increase bets on a Federal Reserve interest rate hike in December.
The market now estimates an 89% probability of a 25-basis-point rate hike in December, while the likelihood of a more aggressive 50-basis-point increase has risen to approximately 11%. Hawkish signals from several Fed officials have further reinforced expectations that US monetary policy will remain restrictive.
Rising interest rates pose a challenge for gold, as the precious metal does not yield any return. Simultaneously, a stronger dollar makes gold more expensive for investors using currencies other than the US dollar, further dampening demand.
Market attention has now shifted to the US Producer Price Index (PPI) data, due Friday, which may provide further clues regarding the trajectory of inflation and the Federal Reserve’s policy path. This data could potentially reshape market expectations concerning the magnitude of a December rate hike.