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Gold falls to near $4,000 as US PCE data reinforces December Fed hike odds
- Gold price tumbles to near $4,015 in Friday’s early Asian session.
- The US PCE inflation accelerated in September.
- Traders see 74.9% odds of a Fed interest rate hike in December.
Gold price (XAU/USD) falls to around $4,015 during the early Asian session on Friday. The precious metal loses ground as US inflation data reinforced expectations of a Federal Reserve (Fed) interest rate hike later this year.
The US Personal Consumption Expenditures (PCE) Price Index climbed 0.5% in September after a 0.3% rise in August, the Commerce Department’s Bureau of Economic Analysis showed on Thursday. This figure came in line with market expectations.
“A stubbornly high inflationary outlook that continues to run hotter than Fed targets is paving the way for thoughts that the Fed will raise rates at the December meeting. That’s ... the main drag on the gold market right now, and today’s PCE report did nothing to allay that fear,” David Meger, director of metals trading at High Ridge Futures, said.
The Federal Open Market Committee (FOMC) left interest rates unchanged in a range of 3.75% to 4% at its October policy meeting on Wednesday. Fed Chair Kevin Warsh did not offer guidance on the outlook, but acknowledged the central bank had not achieved price stability. "We're working on it," Warsh said.
Markets are now pricing in about a 74.9% chance of a US rate hike in December, according to the CME FedWatch tool. Higher interest rates increase the opportunity cost of holding non-yielding gold.
Gold resilience contrasts with pressure on industrial precious metals
According to TD Securities, "industrial metals struggle" in the wake of the latest FOMC meeting, even as gold continues to show relative strength. The bank notes that "while gold remains fairly resilient post-FOMC, industrial precious metals are skewing to the downside, with silver and PGMs materially underperforming as macro headwinds and the prospect of tightening policy weigh on demand outlooks." This divergence underscores a more defensive tone across the complex, with investors favouring gold over more cyclically exposed precious metals.
Warsh underscores unwavering 2% price stability goal, keeping Dollar bulls alert
Warsh’s press conference tone is firmly hawkish, with the 7/10 FXS Speechtracker score in line with the established baseline, underscoring continuity rather than a regime shift. The emphasis that “ensuring price stability is not about a fixed date on a calendar” signals a data-dependent, outcome-focused stance, reinforcing commitment to fully “quashing inflation” even as the Fed describes “new monetary medicine” and the September removal of accommodation as beginning to work. Repeated confidence in inflation expectations “going the right way,” alongside a hard 2% PCE target and “no ifs and or buts” on delivering price stability, points to a Fed that is not yet contemplating an early pivot, a backdrop typically supportive for the Dollar versus the Euro and Yen.
The FXS Fed Sentiment Index’s +14.39-point jump to 141.89 marks a clear hawkish reinforcement, pushing the gauge further above the 100 neutral line and confirming that this communication leans more restrictive than recent Fed messaging. In combination with the steady 7/10 FXS Speechtracker score, the elevated FXS Fed Sentiment Index level signals to FX markets that the policy bias remains toward maintaining tighter conditions, a configuration that tends to underpin the Dollar against major peers.
Technical Analysis: Gold keeps a bearish vibe under the 100-day SMA
In the daily chart, XAU/USD maintains a bearish near-term bias as spot holds below the 100-day simple moving average (SMA) and the Bollinger middle band. Price is edging just above the Bollinger lower band, while the Relative Strength Index (RSI) at 38.23 stays in bearish territory but away from oversold, hinting at persistent downside pressure rather than capitulation.
On the downside, immediate support is located at the Bollinger lower band around $3,995, where sellers may pause. On the topside, initial resistance aligns with the Bollinger middle band near $4,115, followed by the 100-day SMA at $4,215 and the upper Bollinger band at $4,230, levels that would need to be reclaimed to ease the current bearish tone and open the way for a more sustained recovery.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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