Gold prices plummeted nearly 2% on Wednesday after the latest US inflation report exceeded expectations, reigniting speculation about a Federal Reserve rate hike in October. The XAU/USD pair dropped to $4,078, having earlier peaked near $4,170.
The US Consumer Price Index (CPI) for September showed monthly inflation at 0.6%, as expected, but the annual rate rose from 3.4% to 3.7%, surpassing forecasts. Core CPI, which excludes volatile items like energy and food, also increased more than anticipated, driven by higher gasoline, diesel, food, shelter, and used-car prices.
Traders responded by increasing the odds of a Fed rate hike at the October 27-28 meeting from 22% to 42%. This contrasts with New York Fed President John Williams' earlier remarks that he did not expect a rate hike in 2027. Meanwhile, Fed Governor Michelle Bowman noted the Fed is in a wait-and-see mode following the September rate hike.
US Treasury yields edged higher, with the 10-year yield rising to 5.209% and the 2-year yield climbing to 4.829%. The economic calendar ahead includes the Fed’s Beige Book, the Producer Price Index, Retail Sales, and Initial Jobless Claims.
Technically, gold turned bearish after breaking below $4,100, with sellers targeting a potential drop below $4,000. A bearish continuation could see gold testing the July lows near $3,941, while a bullish reversal would require a move above $4,200.