Gold stabilized on Wednesday after a sharp drop the previous session. Resilient physical demand offset worries about further Federal Reserve rate hikes. Traders now fully price in a 25-basis-point increase in December.
Gold stabilized on Wednesday after a sharp decline in the previous session, as resilient physical demand helped offset worries over more inflation-fueled Fed rate hikes.
At 08:29 ET, spot gold had risen 0.2% to $4,039.43 an ounce. The U.S. dollar index edged up 0.4% to 102.64.
Hot CPI and hawkish Fed comments hit bullion
On Tuesday, bullion retreated after a firmer-than-anticipated October U.S. consumer price index report, driven largely by stubbornly elevated energy costs.
Hawkish comments from Fed officials added to the pressure.
Fed Governor Christopher Waller raised the possibility of a 50-basis-point increase at the December meeting. Dallas Fed President Lorie Logan later said rates need to eventually be raised by at least another 50 basis points, in her view.
As a result, traders are now fully pricing in a 25-basis-point increase next month, and bets on a half-point hike have also grown. The Fed raised rates for the first time in three years in September.
Central banks and Asian buyers provide support
Short-dated Treasury yields climbed and a gauge of the dollar surged. Higher borrowing costs tend to undermine non-interest-bearing gold by increasing the opportunity cost of holding it, while a stronger dollar makes bullion more expensive for buyers using other currencies.
Still, gold found support around $4,000 an ounce, thanks to central-bank purchases and strong physical demand in Asia, analysts at ING said in a note. According to ING analysts, uncertainty over the Fed's next move could keep prices volatile in the short term, but "underlying demand remains supportive".
Rick Kanda, Managing Director at The Gold Bullion Company, said central banks are increasingly looking to gold as a strategic asset to diversify reserves and protect against economic and geopolitical uncertainty.
Source: Investing.com
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