Gold Tumbles Underweight by Hawkish Fed Stance and Higher Inflation

The US Consumer Price Index (CPI) report revealed higher-than-expected inflation on Tuesday, which reinforced expectations of a prolonged hawkish stance by the Federal Reserve. This has weighed heavily on gold prices, with spot gold plummeting 2.3% to $1,820 per ounce by mid-session. The inflation data has effectively closed the door on near-term rate cuts, according to market analyst David Carter of Boldwater Advisors.

The decline in gold was exacerbated by a firmer US dollar, which strengthened 0.6% against a basket of major currencies, making gold more expensive for international buyers. The metal's sensitivity to interest rate expectations is evident, as higher rates increase the opportunity cost of holding non-yielding assets like gold.

The inflation print complicates the Fed's path forward, with core inflation rising 0.4% month-over-month, exceeding estimates. This persistence suggests underlying price pressures remain sticky, potentially forcing the Fed to maintain its restrictive policy stance through 2025.