Gold prices extended their decline on Thursday, reaching a one-week low as the US dollar strengthened on expectations of further interest rate hikes by the Federal Reserve. Spot gold dropped 1% to $3,948.82 per ounce, while US gold futures for December delivery fell 1.1% to $3,954.50 per ounce. The decline was attributed to persistent US inflation and hawkish comments from Federal Reserve officials, which fueled speculation of a 50-basis-point rate hike in December.
Ole Hansen, head of commodity strategy at Saxo Bank, noted that gold retreated to test key support around $3,970. The recent hotter-than-expected consumer price index (CPI) readings boosted the dollar to a 19-month high, increasing bets on further Fed tightening. Markets now see a 91% chance of a 25-basis-point rate hike in December, with a 10% probability of a larger 50-basis-point move, according to CME's FedWatch tool.
Higher interest rates typically reduce gold's appeal as it does not pay interest, and a stronger dollar makes it more expensive for buyers in other currencies. Investors are now awaiting Friday's US producer inflation data for further insights into the interest rate outlook. Meanwhile, Bank of England policymaker Megan Greene emphasized the need for proactive monetary policy tightening to combat wage growth and inflation risks.
Other precious metals also saw declines, with spot silver falling 1% to $51.16 per ounce and spot palladium dropping 0.6% to $1,021.25 after hitting its highest level since October 22 on Wednesday.