Gold prices dropped sharply on Tuesday, shedding more than 2% as stronger-than-expected U.S. inflation data boosted the dollar and Treasury yields.
The sharp move lower pared gains from the previous session when bullion had rallied over 1%.
Spot gold fell 2.1% to $4,051.50 an ounce, while U.S. gold futures for December delivery dropped 1.3% to $4,059.30 an ounce. The downward pressure followed a Labor Department report showing persistent inflationary pressures that prompted financial markets to reprice their outlook for monetary policy.
“Both the overall number CPI and the core CPI came in a shade above estimates. All in all, it wasn’t as great as the markets were hoping for,” said Edward Meir, an analyst at Marex.
The Consumer Price Index rose 0.4% last month following a 0.6% advance in September, according to the Bureau of Labor Statistics. Economists polled by Reuters had anticipated a more modest 0.3% month-on-month increase.
A stronger U.S. dollar index, which measures the greenback against a basket of six major currencies, climbed alongside rising Treasury yields. Higher yields increase the opportunity cost of holding non-yielding bullion, while a stronger dollar makes the precious metal more expensive for international buyers holding other currencies.
Following the inflation report and recent remarks from Federal Reserve officials, investors began pricing in a greater likelihood of more aggressive monetary tightening. Federal Reserve Governor Christopher Waller had previously indicated he would support firmer action if consumer price reports ran too hot.
According to CME’s FedWatch tool, the probability of a 50-basis-point interest rate hike in December rose to approximately 13.6%, up from 0% prior to the data release. A standard 25-basis-point adjustment remains fully priced in by market participants.
