【TMGM Financial Recap】$4,000 Level Lost Again: Gold Retreats as Inflation Surges, the Dollar Strengthens and Rate Hike Expectations Stay Firm!

Spot gold lost another 1.1% on Wednesday. The close below $4,000 followed Tuesday’s plunge of nearly 3%. An 18-month high for the US Dollar Index came as US October CPI surpassed expectations and Federal Reserve officials delivered hawkish remarks. With the probability of a December rate hike rising to 100% and expectations strengthening for a larger, 50-basis-point move, gold faced substantial pressure. Oil price gains fuelled inflation concerns, reinforcing expectations of additional Fed tightening.

For gold bulls, the more troubling development was the hawkish message from Fed officials on both sides of the data release. Before publication, Fed Governor Christopher Waller explicitly linked his willingness to consider a half-percentage-point December increase to an October core inflation reading of 0.3%. Dallas Fed President Lorie Logan likewise voiced serious concern about elevated inflation, signalling support for a substantial rate increase. Investor pricing now assigns a 100% probability to a December Fed hike of at least 25 basis points, against around 70% a month ago. The likelihood of a larger, 50-basis-point increase has reached 12.9%, compared with zero before the CPI release.

December and March hikes now feature in Goldman Sachs’ forecast, together with three possible increases in 2027. For Deutsche Bank, the projected sequence is December, January and March, with a hike at each meeting. Gold pays no interest, so higher rates raise the opportunity cost of holding it. This remains the primary factor keeping prices under pressure.

The latest gold moves also reflect a complicated geopolitical backdrop. Renewed concern about oil supplies helped prices recover from a two-month low on Wednesday, after Iran’s security chief said no enriched nuclear material would be permitted to leave the country. In parallel, US Vice President JD Vance is emerging as the lead negotiator with Iran. To end the war, he is considering face-to-face talks with senior Iranian security officials. Fighting alongside negotiations sustains a stalemate, making the full disappearance of the geopolitical risk premium unlikely. With expectations of Fed rate hikes setting the tone for markets, however, rising interest rates have clearly exerted more pressure on gold than safe-haven demand has provided support.

Near-term headwinds have accumulated, but support for gold remains. Continued purchases in substantial volumes by China, the world’s largest gold consumer, and by central banks elsewhere provide a firm footing for prices. Short-term price volatility often has less bearing on central bank demand. Strategic allocation goals suggest these official-sector purchases will persist through pullbacks.

25-Basis-Point December Hike: Market Insight

Further Fed tightening is already largely embedded in prices, creating the central tension for gold. Investors see a 25-basis-point December hike as almost certain, while assigning a growing probability to a 50-basis-point increase. As a result, prices may already account for much of the downward pressure expected in the near term. Delivering a broadly anticipated hike typically has less market impact; the unresolved issue is the length of the tightening cycle. Gold’s immediate headwinds are unlikely to dissipate easily. Nevertheless, central bank purchases offer structural support, and a geopolitical risk premium that persists could reduce the likelihood of a deeper decline. Fluctuations during base formation are the more likely outcome, pending a reassessment after the rate hike takes place.