Gold prices fell more than 1% on Wednesday, extending losses for a third consecutive session, as hotter-than-expected US inflation data strengthened expectations of another interest rate hike by the Federal Reserve this month.
Spot gold dropped 1.6% to $4,091.06 per ounce by 11:30 a.m. EDT (3:30 p.m. GMT), its lowest level since October 7, Reuters reported. US gold futures for December delivery also declined 1.5% to $4,112.90 per ounce. Spot gold was trading at $4,083.69, down $77.51, or 1.86%, according to the real-time data provided.
The decline comes despite gold's traditional role as a hedge against inflation. While the precious metal is often sought as a store of value when prices rise, expectations of higher interest rates can weigh on demand because gold does not offer interest income.
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According to Reuters, the US Consumer Price Index (CPI) rose 0.6% in September, accelerating from a 0.4% increase in August, as gasoline prices surged. The report also pointed to broader price pressures beyond energy, raising concerns that underlying inflation could remain persistent.
The stronger inflation reading prompted traders to reassess the Federal Reserve's next move. Markets saw a roughly 42% chance of a US rate hike in October, up from around 22% before the data was released. The probability of an increase in December stood at 93%, according to CME's FedWatch Tool, Reuters reported.
The US dollar index rose 0.7% following the inflation data, making gold priced in dollars more expensive for buyers holding other currencies. Yields on 10-year US Treasury bonds also moved higher, adding pressure on bullion.
"At this point it portends that the Fed is more likely to raise interest rates," David Meger, director of metals trading at High Ridge Futures, told Reuters, referring to the hotter-than-expected CPI reading.
He added that the stronger dollar had put additional pressure on the gold market.
Federal Reserve Vice Chair for Supervision Michelle Bowman said the central bank could wait and assess developments in financial markets and the broader economy following its September rate increase before deciding on further action.
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However, the prospect of tighter monetary policy has complicated the near-term outlook for gold. Higher interest rates generally support the dollar and Treasury yields, potentially reducing the appeal of non-yielding assets such as bullion.
Longer-term factors could still offer support. Carsten Menke, an analyst at Julius Baer, told Reuters that continued central-bank purchases, concerns over US government debt and the rising cost of servicing it could benefit gold over time.
Other precious metals also declined on Wednesday. Spot silver fell 5.6% to $56.13 per ounce, platinum slipped 3.3% to $1,609.19, and palladium dropped 2.3% to $1,100.22.
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