Gold prices dropped on Thursday as investors reacted to signals from the Federal Reserve and Chair Kevin Warsh. The Fed left interest rates unchanged, but rising U.S. inflation reinforced expectations of a rate hike later this year, reducing the appeal of the non-yielding metal.
Spot gold fell 1% to $4,026.12 an ounce, while U.S. gold futures for December delivery declined 0.3% to $4,037.60. Bullion is on track for its second straight monthly decline. David Meger, director of metals trading at High Ridge Futures, noted that stubbornly high inflation is pushing expectations of a December rate hike, which is weighing on gold prices.
The Personal Consumption Expenditures Price Index (PCE) accelerated in September, climbing 0.5% after a 0.3% rise in August. Traders are pricing in an 83% chance of a U.S. rate hike in December, according to CME Group's FedWatch tool. Higher interest rates increase the opportunity cost of holding gold.
Investors are also monitoring the energy market, as energy prices significantly impact inflation. The November 3 U.S. elections and their potential impact on fiscal policy are also in focus. Meanwhile, European Central Bank President Christine Lagarde will step down on February 7, with the ECB warning of rising inflation risks from surging energy costs.
Other precious metals also declined. Spot silver fell 2.7% to $52.54 per ounce, platinum dropped 3.7% to $1,486.47, and palladium slid 0.7% to $1,003.58. All three metals are headed for a second straight monthly decline.