【TMGM Financial Recap】Surging Inflation, a Stronger Dollar and Firm Rate Hike Expectations Push Gold Back Below $4,000!

Spot gold extended its decline after plunging nearly 3% on Tuesday, falling another 1.1% on Wednesday to close below $4,000. Stronger-than-expected US October CPI data and hawkish Federal Reserve remarks pushed the US Dollar Index to an 18-month high. The probability of a December rate hike rose to 100%, while expectations for a larger, 50-basis-point increase also strengthened, putting significant pressure on gold. Rising oil prices added to inflation concerns and reinforced expectations of further Fed tightening.

More troubling for gold bulls were the hawkish comments from Fed officials before and after the data release. Ahead of the report, Fed Governor Christopher Waller explicitly stated that he would consider a half-percentage-point rate hike at the December meeting if October core inflation came in at 0.3%. Dallas Fed President Lorie Logan also expressed serious concerns about elevated inflation and signalled support for a substantial rate increase. Investors are now pricing in a 100% probability of a Fed rate hike of at least 25 basis points in December, up from around 70% a month ago. Meanwhile, the probability of a larger, 50-basis-point increase climbed from zero before the CPI release to 12.9%.

Goldman Sachs now expects rate hikes in December and March, with three possible increases in 2027, while Deutsche Bank forecasts consecutive hikes in December, January and March. For gold, higher interest rates increase the opportunity cost of holding a non-interest-bearing asset, which is the main reason prices remain under pressure.

Geopolitical developments have played a complex role in the latest gold price movements. On Wednesday, Iran’s security chief said the country would not allow any enriched nuclear material to be taken abroad. The remarks sparked concerns over oil supplies, helping oil prices recover from a two-month low. Meanwhile, US Vice President JD Vance is emerging as the lead negotiator in talks with Iran and is considering face-to-face discussions with senior Iranian security officials to end the war. This stalemate, with fighting and negotiations continuing simultaneously, means the geopolitical risk premium is unlikely to disappear entirely. However, with Fed rate hike expectations dominating market sentiment, safe-haven demand for gold has clearly been outweighed by the pressure from rising interest rates.

Despite the concentration of near-term headwinds, the market still has some support. China, the world’s largest gold consumer, and central banks elsewhere continue to buy substantial amounts of gold, providing a firm foundation for prices. Central bank purchases are often less sensitive to short-term price fluctuations. Their strategic allocation objectives suggest that official-sector buying will continue even during price pullbacks.

Market Insight:

The central tension facing gold is that expectations of further Fed tightening are already largely priced in. A 25-basis-point December hike is viewed as almost certain, while the probability of a 50-basis-point increase is also rising. This suggests that much of the near-term downside pressure may already be reflected in prices. When investors broadly expect a rate hike, the hike itself tends to have less impact on the market. The key uncertainty is how long the tightening cycle will continue. Although the near-term pressure on gold is unlikely to reverse easily, structural support from central bank purchases and a lingering geopolitical risk premium could limit the likelihood of a deeper decline. Gold is more likely to fluctuate as it forms a base, awaiting a reassessment once the rate hike takes place.