Gold fell on Tuesday after a hotter-than-anticipated U.S. inflation reading and hawkish remarks from Fed Governor Christopher Waller. Traders now price in at least a quarter-point rate rise in December.
Spot gold fell 2.2% to $4,051.36 an ounce at 09:28 ET on Tuesday, extending its losses. A hotter-than-anticipated reading for October combined with comments from a Fed policymaker to all but solidify expectations for an interest rate hike next month.
U.S. gold futures dropped 1.3% to $4,060.57 an ounce, while the U.S. dollar index edged up 0.3% to 101.98.
Gold reverses a rally toward $4,130
Bullion gained 1.7% on Monday and advanced around 5% last week, taking prices towards $4,130 an ounce. Over the same stretch, Brent crude fell below $90 a barrel for the first time since August, as markets grew more optimistic about a potential breakthrough in U.S.-Iran peace negotiations.
Gold and oil have generally moved in opposite directions this year. Higher energy prices have fueled inflation and strengthened expectations of tighter monetary policy, which creates a headwind for gold because it does not offer interest income.
Waller opens the door to a half-point hike
However, the Fed's inflation trajectory has limited further gains. Headline and underlying U.S. consumer price growth was firmer than expected, and Waller, speaking in London, backed hiking rates and hinted that a half-point rise could be warranted if monthly inflation data comes in hot.
Richmond Fed President Tom Barkin and Chicago Fed President Austan Goolsbee also highlighted the resilience of the U.S. economy and persistent inflation. According to CME FedWatch, traders are pricing in at least a quarter-point rise in December, which would lift the key Fed funds rate to a range of 4% to 4.25%.
Analysts at William Blair still believe 25 is far more likely than 50, though they said Waller is already helping tighten financial conditions by opening the Overton window to 50.
Source: Investing.com
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