Why has gold fallen to near $4,000 as US PCE data bolsters December Fed hike bets?

Selling pressure drives Gold towards $4,015 during early Asian trade on Friday.
September saw an acceleration in US PCE inflation.
A December Fed interest rate hike carries a 74.9% probability in traders’ pricing.

Selling pressure weighs on Gold (XAU/USD), taking the price towards $4,015 in Friday’s early Asian trading. Behind the precious metal’s decline are US inflation figures that strengthened expectations of an interest rate increase by the Federal Reserve (Fed) later this year.

In line with market forecasts, the US Personal Consumption Expenditures (PCE) Price Index rose 0.5% in September, compared with an increase of 0.3% in August. The figures were released on Thursday by the Commerce Department’s Bureau of Economic Analysis.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

David Meger, director of metals trading at High Ridge Futures, said: “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,”

At Wednesday’s October policy meeting, the Federal Open Market Committee (FOMC) kept interest rates within the existing 3.75% to 4% range. While Fed Chair Kevin Warsh gave no guidance on the outlook, he acknowledged that price stability had yet to be achieved by the central bank. Warsh said: "We're working on it,"

According to the CME FedWatch tool, the probability of a December US rate increase now stands at about 74.9% in market pricing. Holding gold, which offers no yield, becomes more costly in opportunity-cost terms when interest rates rise.

Why is Gold holding up better than industrial precious metals?

Relative strength in gold following the latest FOMC meeting contrasts with weakness elsewhere, with TD Securities observing that "industrial metals struggle". As the bank puts it, "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." Investors’ preference for gold over precious metals with greater cyclical exposure highlights a more defensive mood across the complex.

Does Warsh’s firm 2% price stability goal keep Dollar bulls on watch?

Continuity, rather than a shift in regime, emerges from Warsh’s firmly hawkish press conference: the FXS Speechtracker reading of 7/10 matches the established baseline. By stressing that “ensuring price stability is not about a fixed date on a calendar”, he conveys an outcome-oriented approach guided by data. That stance underlines the commitment to fully “quashing inflation”, even as the Fed says “new monetary medicine” and September’s withdrawal of accommodation are starting to take effect. Confidence, expressed repeatedly, that inflation expectations are “going the right way,” sits alongside a firm 2% PCE target and “no ifs and or buts” over achieving price stability. Taken together, these signals suggest the Fed is not yet considering an early policy pivot, a setting that typically favours the Dollar against the Euro and Yen.

A further hawkish signal comes from the FXS Fed Sentiment Index, which has climbed +14.39 points to 141.89. The increase takes it further beyond the neutral threshold of 100, confirming a more restrictive tone than in recent Fed communications. Read alongside the unchanged 7/10 FXS Speechtracker score, the higher FXS Fed Sentiment Index reading tells FX markets that policy remains tilted towards keeping financial conditions tighter. Such a backdrop generally lends support to the Dollar against its major counterparts.

Technical Analysis: Can Gold shake off its bearish bias below the 100-day SMA?

Trading below both the 100-day simple moving average (SMA) and the middle Bollinger band leaves XAU/USD with a bearish near-term outlook on the daily chart. Spot prices hover just above the lower Bollinger band. Meanwhile, a Relative Strength Index (RSI) reading of 38.23 remains in bearish territory without reaching oversold levels, suggesting continued downward pressure rather than capitulation.

The lower Bollinger band, around $3,995, provides immediate support, where selling could take a breather. For any upward move, the first resistance comes at the middle Bollinger band near $4,115. Beyond that lie the 100-day SMA at $4,215 and the upper Bollinger band at $4,230. Recovering these levels would be necessary to soften the prevailing bearish outlook and create scope for a more durable rebound.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Common questions about Gold

What makes Gold an investment choice?

As a widely used store of value and medium of exchange, Gold has occupied an important place throughout human history. Today, its appeal extends beyond its lustre and use in jewellery: the precious metal is commonly regarded as a safe-haven asset, or a suitable investment during periods of turmoil. Because it is not dependent on a particular issuer or government, Gold is also widely considered a hedge against inflation and currency depreciation.

Which buyers hold the largest amounts of Gold?

No group holds more Gold than central banks. To bolster their currencies during unsettled periods, they typically diversify reserves and purchase Gold, strengthening perceptions of both the economy and the currency. Substantial Gold reserves can inspire confidence in a country’s ability to meet its financial obligations. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. The purchases marked the largest annual total on record. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold tends to move inversely to them. A weakening Dollar generally supports Gold, allowing central banks and investors to diversify their holdings during turbulent periods. Risk assets also have an inverse relationship with Gold: gains in equities typically weigh on the metal’s price, whereas selling in riskier markets generally supports it.

Which factors influence Gold prices?

A variety of forces can drive changes in Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns about a severe recession can trigger a rapid increase. Since Gold pays no yield, falling interest rates generally support it, while a higher cost of borrowing usually puts the yellow metal under pressure. Nevertheless, movements in the US Dollar (USD) account for most price changes because Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a softer Dollar, by contrast, is likely to lift them.