Gold prices dropped by more than 1% on Wednesday, marking the third consecutive session of losses. The decline came after a stronger-than-expected US inflation report boosted expectations of a Federal Reserve interest rate hike this month. Spot gold fell 1.7% to $4,086.06 per ounce, its lowest level since October 7, while US gold futures for December delivery decreased by 1.6% to $4,108.60 per ounce.
The US dollar index climbed 0.4%, making gold more expensive for holders of other currencies. David Meger, director of metals trading at High Ridge Futures, noted that the hotter-than-expected Consumer Price Index (CPI) data increased the likelihood of a Fed rate hike. 'With the CPI inflationary data coming in hotter than expected and continuing to run at the levels above Fed targets, at this point it portends that the Fed is more likely to raise interest rates,' Meger said.
Markets now see about a 44% chance of a US rate hike this month, up from 22% before the inflation data was released. The probability of a rate increase in December stands at 95%, according to CME's FedWatch Tool. Higher interest rates typically reduce the appeal of non-yielding bullion like gold.
Other precious metals also saw declines. Spot silver fell 4.1% to $56.99 per ounce, platinum dipped 2% to $1,629.79 per ounce, and palladium fell 0.7% to $1,118.46 per ounce. Despite the short-term pressure, Julius Baer analyst Carsten Menke suggested that gold could benefit in the longer term from strong central-bank buying and concerns over US debt.