Gold prices fell below $4,000 an ounce on Thursday, extending losses from the previous trading session as persistent US inflation concerns and increasingly hawkish Federal Reserve signals strengthened expectations of another interest-rate increase in December.
Spot gold declined 0.4 percent to $3,973.13 an ounce, while US gold futures shed 0.6 percent to $3,978.57, reflecting renewed selling pressure as investors reassessed the outlook for monetary policy in the world’s largest economy.
The decline came as financial markets increasingly priced in a 25-basis-point increase in the Federal Reserve’s benchmark interest rate in December, with some investors also considering the possibility of a more aggressive 50-basis-point adjustment.
The shift in expectations has weakened the investment appeal of bullion, which does not generate interest income and typically faces pressure when interest rates and yields on government securities rise.
Comments from Federal Reserve policymakers have reinforced concerns that inflation remains persistent enough to prevent an early easing of monetary policy.
Chicago Fed President Austan Goolsbee described October’s inflation report as “borderline disturbing”, while fellow policymaker Anna Paulson warned that elevated price pressures were not being driven by temporary factors.
The remarks have strengthened market concerns that the Federal Reserve may need to maintain restrictive monetary conditions for longer, or raise borrowing costs further, to bring inflation under control.
The repricing of interest-rate expectations has also been reflected in the US bond market. Two-year Treasury yields, which are particularly sensitive to changes in near-term monetary policy expectations, jumped 18 basis points on Tuesday, signalling a significant adjustment in investors’ assessment of the Fed’s next move.
A rise in Treasury yields increases the opportunity cost of holding gold, as investors can earn higher returns from interest-bearing assets without taking exposure to the price movements of non-yielding bullion.
The US dollar has also strengthened, adding another layer of pressure on gold prices. The dollar index edged up 0.1 percent to 102.98 on Thursday, making dollar-denominated bullion more expensive for buyers using other currencies.
ANZ analysts said stronger-than-expected inflation data and resilient economic indicators had increased expectations of a more aggressive Federal Reserve stance, potentially including a 50-basis-point rate increase in December.
They added that rising Treasury yields and further dollar strength had weighed on investment demand for the precious metal.
The pressure extended beyond gold to other precious metals, although movements were mixed.
Spot silver declined 0.6 percent to $51.3605 an ounce, while platinum fell 0.2 percent to $1,535.84. Spot palladium, however, edged up 0.1 percent to $1,034.06 an ounce, while palladium futures gained 0.1 percent to $1,031.25.
For gold investors, the immediate concern is whether persistent inflation and resilient US economic activity will compel the Federal Reserve to maintain a more restrictive policy trajectory than previously anticipated.
A further increase in interest rates could deepen the pressure on bullion by raising the relative attractiveness of interest-bearing investments and supporting the dollar.
The fall below $4,000 therefore represents more than a decline in the metal’s immediate market price. It reflects a reassessment of the monetary conditions underpinning gold’s investment appeal, as inflation risks and expectations of tighter US monetary policy compete with the traditional attraction of bullion as a store of value.
