Gold prices dropped sharply after US consumer prices surged more than expected in September, fueling speculation that the Federal Reserve may need to raise interest rates further to curb inflation. The consumer price index (CPI) rose 0.6% from August and 3.7% year-over-year, driven by higher fuel costs. This increase in inflationary pressures sent bullion down as much as 2.1% to near US$4,070 an ounce, as investors worried about higher borrowing costs hurting demand for non-yielding assets like gold.
The decline in gold was exacerbated by escalating tensions in the Middle East, which raised concerns over potential disruptions to regional energy supplies. Other precious metals like silver, platinum, and palladium also fell, while the US dollar strengthened by 0.3%. Copper prices dropped 0.4% on the London Metal Exchange, with the rallying dollar and prospects of higher interest rates weighing on the industrial metal.
The Federal Reserve had raised interest rates in September for the first time since 2023 in response to renewed price pressures. While officials have indicated they will assess incoming data before acting again, the median projection suggests one more rate hike in 2026. The surge in consumer prices initially sparked a selloff in Treasuries, but the market stabilized as expectations of future rate hikes dragged down US equity benchmarks, pushing the S&P 500 to a one-week low.
Looking ahead, traders are watching for September US producer price data and remarks from Fed Chairman Kevin Warsh, who is scheduled to speak in Bangkok. Analysts warn that further disruptions in Middle East oil supplies due to the Iran war could drive inflation higher, potentially pushing gold prices below US$3,900 per ounce.