Gold falls below $3,900 to a 13-month low as Fed officials press for more rate hikes

Gold fell below $3,900 an ounce to a 13-month low, while Brent crude futures rose⁴. The metal broke through the $3,886 floor to a new low for the year^2,3. Having already fallen below the $4,000 mark, world gold prices hit their lowest level in a year⁵.

Gold slid 3.6% in its worst session in weeks, as rising crude and sticky PCE inflation weighed on it⁷. The decline followed the Federal Reserve’s decision to keep borrowing costs steady with little guidance on its next move⁶. Gold prices have been declining for the past two months¹.

Why it matters to investors

Fed officials have kept pressing for tighter policy². St. Louis Fed President Alberto Musalem called for another rate hike soon and said policy remains too loose². The hawkish tilt was not limited to the Fed chairman’s remarks, with several US central bank officials adding to it¹². Markets priced a 70 to 80 percent chance of a Fed rate increase in December after the central bank held rates at 3.75 to 4.00 percent in October¹¹.

In Japan, the central bank left its short-term policy rate unchanged at 1.25% but delivered a distinctly hawkish message on the risk of an inflation overshoot³. The 3.6% pullback has put the December Fed meeting in the frame for gold traders⁸.

A poll that recorded cuts to gold price forecasts also highlighted robust central bank purchases and physical demand as supportive forces⁸. Analyst Joe Mazumdar pointed to underlying support from central-bank buying, noting that the World Gold Council has reported a pickup in such purchases⁹. UBS has not changed its price target, and central bank buying is expected to cushion the retreat¹⁰. By contrast, three other metals do not have the support of central bank purchases and safe-haven demand that gold has⁵.

What to watch

One group of market participants has been moving against the price: gold producers have been buying again, even as prices declined over the past two months¹. Central bank purchases are the other source of demand that analysts and the poll identify as a support for the market^8,9.

The December Fed meeting, which markets price at 70 to 80 percent odds of a hike, is the next test for the metal after its break below $3,900^4,11.