Gold falls over 1% as hawkish Fed remarks weigh ahead of US CPI
- Gold falls more than 1% amid profit-taking and hawkish Fed comments ahead of US CPI data.
- Fed Governor Waller keeps the door open for a 50-basis-point rate hike in December.
- XAU/USD holds above the 20-day SMA near $4,061, while RSI signals neutral momentum.
Gold (XAU/USD) falls more than 1% on Tuesday, giving back much of the previous day’s gains as traders lock in profits. Hawkish remarks from Federal Reserve (Fed) Governor Christopher Waller add to the pressure as markets wait for US consumer inflation data, due at 13:30 GMT. At the time of writing, XAU/USD trades around $4,075, down from Monday’s high near $4,148.
Waller said he would “still support a 25 basis point increase” in December even if October inflation cooled. He added that a “half-point Fed rate hike may be needed in December” if October core CPI comes in “around 0.3% or higher.” Traders are now fully pricing in a 25-basis-point (bps) rate hike in December, according to the CME FedWatch Tool.
Economists expect headline Consumer Price Index (CPI) to rise 0.3% MoM in October, down from 0.6% in September. Core CPI, which excludes food and energy, is also expected to ease to 0.2% from 0.3%.
Waller’s remarks also helped the US Dollar Index (DXY) regain ground after it fell 0.60% on Monday, as hopes for US-Iran diplomacy pushed crude prices lower. The DXY, which tracks the Greenback’s value against a basket of six major currencies, trades around 101.70, up from an intraday low of 101.49.
West Texas Intermediate (WTI) slips toward $83 a barrel, its lowest level since August 31, after US President Donald Trump said there was “positive momentum” toward ending the war with Iran following talks with Qatar’s prime minister at the White House on Monday.
Analysts at ING expect the Dollar to remain underpinned in the near term, arguing that “the dollar should stay supported by strong US growth, high inflation and a Fed threatening to tighten” further. They note that “our base case assumes that the Federal Reserve stays hawkish in the first quarter, as decent US growth and above-3% inflation keep money markets pricing in the threat of an extended tightening cycle.”
The hawkish Fed outlook remains a headwind for Gold, as higher interest rates raise the opportunity cost of holding the non-yielding metal. A hotter-than-expected CPI report could cement bets on a December rate hike and lift the US Dollar, while a softer reading could weigh on the Greenback and give Gold some breathing room.
Technical Analysis: $4,000 level in focus if the 20-day SMA gives way
On the daily chart, XAU/USD near-term tone is neutral, with spot holding just above the 20-day Simple Moving Average (SMA) from the Bollinger Bands at roughly $4,061, which acts as immediate support, while the upper band around $4,220 caps the topside. The Relative Strength Index (RSI) at about 49 underscores a range-bound backdrop, even as the Moving Average Convergence Divergence (MACD) turns decisively positive, hinting that upside momentum is improving but still constrained by nearby resistance.
On the upside, initial resistance emerges at the Bollinger upper band near $4,220, ahead of a more significant horizontal barrier at $4,400, where sellers could reassert control. On the downside, first support is seen at the mid-Bollinger 20-day SMA around $4,061, followed by the psychological and chart floor at $4,000. Further losses could expose the lower Bollinger Band near $3,902, followed by the year-to-date low at $3,870.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
