Gold Slips As Oil Rally And US Inflation Strengthen Rate Hike Expectations

Gold prices fell on October 30 as rising crude oil prices and stronger-than-expected US inflation data fuelled expectations of another Federal Reserve rate hike in December. Higher borrowing costs could weigh on demand for bullion, which does not offer any regular yield.

December gold futures on the Multi Commodity Exchange (MCX) fell as much as 0.59 per cent, or Rs 843, to an intraday low of Rs 1,41,753 per 10 grams.

On the international front, December gold futures on the COMEX declined 0.73 per cent, or $29.40, to $4,002 per ounce.

US inflation accelerated in September as consumers paid more for gasoline and other goods, adding to concerns that price pressures remain persistent.

The Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose 0.5 per cent month-on-month on a seasonally adjusted basis, taking the annual inflation rate to 3.6 per cent, according to the Bureau of Economic Analysis (BEA). The monthly increase was the largest since March, while the annual rate was 0.1 percentage point lower than the previous reading.

Core PCE inflation, which excludes volatile food and energy prices, increased 0.3 per cent during the month, while its annual rate stood at 3.1 per cent.

The inflation numbers have strengthened expectations of another rate increase by the US central bank. Traders are now pricing in a 74.9 per cent probability of a 25-basis-point rate hike in December, according to the CME FedWatch Tool. The probability was 73.3 per cent a week ago and 49.4 per cent a month earlier.

Oil Prices Add To Inflation Concerns

Crude oil prices also worried investors as supply disruptions and geopolitical tensions kept prices high. Oil prices rose on Friday and were on track for a fourth consecutive monthly gain, which would be their steepest since July. Supply concerns intensified after Yemen's Iran-aligned Houthis stepped up attacks on Saudi Arabia.

December Brent crude futures briefly approached $118 a barrel before easing to around $116 in early trade. The US West Texas Intermediate (WTI) crude futures touched $105 a barrel before retreating to around $103.

A sustained rise in crude oil prices could make it harder for the Fed to bring inflation down. Higher fuel costs can feed into transportation, manufacturing and other business expenses, eventually pushing up prices for consumers.

Fed Holds Rates, But December Hike Remains On The Table

The US Federal Reserve kept its benchmark interest rate unchanged in the 3.75-4 per cent range at its latest policy meeting. However, two policymakers voted in favour of a rate increase, signalling that concerns over inflation remain within the central bank.

Fed Chairman Kevin Warsh said energy prices and related costs had risen again in recent weeks. He said the central bank needed to ensure that price increases in individual sectors did not spread across the wider economy. Keeping inflation expectations under control also remained important, according to Reuters.

The Fed is monitoring several factors that could keep inflation elevated, including higher energy costs, tariffs, resilient consumer spending and investment linked to artificial intelligence (AI).

Gold Price Outlook

Higher interest rates can put pressure on gold prices because, unlike bonds and other interest-bearing investments, gold does not provide regular income. When interest rates rise, investors may prefer assets that offer interest or better returns over gold.

With inflation still above the Fed's target and crude oil prices rising, expectations of higher interest rates could put further pressure on gold prices in the near term.