- Consumer and wholesale inflation in the US came in hotter than expected in September.
- Market participants are pricing a 92% chance of a Fed rate hike in December.
- Oil recently pulled back after reports that Trump had waived sanctions on Russia.
Gold prices extended losses on Wednesday as market participants eagerly awaited the FOMC policy meeting next week. However, the move remained subdued with no major economic releases this week. At the same time, the recent pullback in oil prices eased supply and inflation worries, capping declines in the yellow metal.
Spot gold (Source: Bloomberg)
Consumer and wholesale inflation in the US came in hotter than expected in September, raising the likelihood of higher borrowing costs for longer and sending prices lower. At the same time, sales jumped in the same period, pointing to solid consumer spending and an economy that can withstand higher interest rates.
However, traders were still pricing a high chance that the Fed would pause during this month’s meeting. This is because policymakers maintained that there was no need to rush. Nevertheless, market participants are pricing a 92% chance of a hike in December. Furthermore, if the tone during the meeting next week is hawkish, expectations for hikes next year could increase.
Gold does poorly when interest rates are high because it has no yield. Investors flock to yielding assets like the dollar and Treasury yields. Therefore, a hawkish tone at the meeting could send bullion lower.
“Inflation and the Fed’s interest rates are the big stories that gold’s fighting at the moment. US Treasuries do appear more favorable than gold as a safety asset for the moment,” said Bob Haberkorn, senior market strategist at StoneX.
“$4,000 is a high level for (gold) to keep an eye on and see if it can hold. A lot of that, at the moment, is going to be dependent on what the Fed says,” Haberkorn said.
The US will also release its core PCE price index report soon after the meeting. The number, a favorite for policymakers, will continue to shape the outlook for future moves.
Elsewhere, traders are watching developments in the Middle East, where a prolonged war could keep oil prices elevated. However, oil recently pulled back after reports that Trump had waived sanctions on Russia. This move will allow the oil-producing country to export more of its fuel to the global economy, easing supply worries.
