- Gold prices dropped over 2% after higher-than-expected US inflation data on Nov 10
- US October CPI rose 0.4%, exceeding the 0.3% forecast by economists
- Stronger inflation data raised chances of a Fed rate hike, impacting gold negatively
The yellow metal's prices tumbled more than 2% on Nov 10 after hotter-than-expected US inflation data strengthened the dollar, and pushed Treasury yields higher, dealing yet another blow to bullion. Spot gold fell 2.1% to $4,051.50 per ounce by 9:27 a.m. ET (2:27 p.m. GMT), while US gold futures for December delivery declined 1.34% to $4,059.30 per ounces.
This came as October's US CPI rose 0.4% in October, compared with the 0.3% increase forecast by economists polled by Reuters. Although the monthly increase slowed from 0.6% in September, the reading was still higher than expected. Core inflation also came in above forecasts. The surprise strengthened expectations that the Federal Reserve may need to maintain a tighter monetary policy or consider a more aggressive rate move.
According to the CME FedWatch Tool, the probability of a 50-basis-point rate hike in December rose to around 13.6% after the inflation report, from zero before the data.
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The dollar index, which measures the greenback against a basket of major currencies, strengthened after the CPI release, while US Treasury yields also climbed. The 10-year US Treasury yield rose more than eight basis points to 4.95%. The combination is particularly challenging for gold. Since bullion is priced in dollars, a stronger greenback makes it more expensive for investors holding other currencies, potentially reducing demand. Higher Treasury yields also increase the opportunity cost of holding gold, which does not offer interest income.
Edward Meir, an analyst at Marex, told Reuters that both headline and core inflation had come in slightly above estimates, making the report less favourable for markets than investors had hoped.
The weakness extended across other precious metals. Spot silver fell 2.9% to $51.86 per ounce, while palladium declined 1% to $1,031.20 per ounce.
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