Gold prices recovered modestly on Wednesday (11 November), following a sharp selloff in the previous session. However, stronger-than-expected US inflation and growing expectations of further Federal Reserve interest rate hikes continue to weigh on the precious metal.
Gold Recovers After Sharp Selloff
Spot Gold rose 0.3% to US$4,043.62 per ounce in early Wednesday trading, after plunging nearly 3% on Tuesday. US Gold futures for December delivery also gained 0.5% to US$4,051.10.
The modest recovery followed one of Gold’s sharper recent declines, although market sentiment remained cautious amid uncertainty surrounding the Federal Reserve’s monetary policy outlook.
Stronger US Inflation Fuels Rate Hike Expectations
The latest US Consumer Price Index (CPI) report showed consumer prices rising 0.4% in October, exceeding economists’ expectations of a 0.3% increase.
The stronger inflation reading, coupled with hawkish comments from Federal Reserve officials, reinforced expectations that interest rates could rise further.
According to CME’s FedWatch Tool, traders increased their expectations of a December rate hike to 100%, up from 84% before the inflation data. Expectations of a larger 50-basis-point increase also strengthened.
Federal Reserve officials have reiterated their commitment to bringing inflation under control, suggesting that monetary policy could remain restrictive.
Why Higher Interest Rates Are Weighing on Gold
Although Gold is traditionally regarded as a hedge against inflation, higher interest rates can reduce its attractiveness to investors.
Unlike interest-bearing assets, Gold does not generate regular income. Rising Treasury yields therefore increase the opportunity cost of holding bullion, while a stronger US dollar can make Gold more expensive for buyers using other currencies.
These factors have limited Gold’s recovery despite the renewed buying interest following Tuesday’s selloff.
What’s Next for Gold?
Market analysts remain cautious about Gold’s near-term outlook, with the latest rebound potentially reflecting a technical recovery following the previous session’s heavy losses.
Investors will be closely monitoring upcoming US economic data, Federal Reserve commentary and developments in Treasury yields and the US dollar for further indications of Gold’s direction.
With Gold recovering from its recent selloff, the key question is whether the rebound can gain momentum or whether expectations of higher interest rates will continue to limit its upside.
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