By 0333 GMT, spot gold had dropped 1.1 per cent to $4,094.90 per ounce, marking its lowest level since October 14. US gold futures for December delivery followed the downward trend, falling 0.9 per cent to $4,111.40 per ounce.
The decline reflects growing concerns that sustained increases in energy prices could keep inflation above desired levels, potentially forcing central banks to maintain restrictive monetary policies. Higher interest rates typically weigh on gold because the metal does not generate interest or dividends, making it less attractive than interest-bearing investments.
Kelvin Wong, a senior market analyst at OANDA, said further increases in oil prices could intensify inflationary pressures and raise the prospect of higher interest rates over an extended period, putting additional pressure on gold.
Oil prices advanced on Thursday following renewed attacks by Yemen’s Houthi movement in Saudi Arabia, prompting the United States to order some diplomats and family members to leave its missions in the kingdom. The developments heightened concerns over regional security and the potential implications for energy supplies and prices.
Although persistent inflation, largely driven by elevated energy costs, has strengthened the argument for tighter monetary policy, Federal Reserve policymakers are expected to exercise caution in the near term as they assess incoming economic data.
Market expectations suggest that traders see only a 16 per cent probability of an interest rate increase at the Fed’s October 27–28 policy meeting. However, according to CME’s FedWatch Tool, the probability of a rate hike in December stands at 90 per cent, indicating that investors increasingly anticipate further monetary tightening before the end of the year.
Attention is also turning to the upcoming Personal Consumption Expenditures (PCE) price index, a key inflation measure closely monitored by the Federal Reserve as it seeks to achieve its 2 per cent inflation target. The data could provide fresh indications of whether price pressures are easing or remain strong enough to justify keeping borrowing costs high.
Wong noted that expectations of elevated interest rates across both the short and long ends of the yield curve were reducing gold’s appeal by increasing the opportunity cost of holding the non-yielding asset.
From a technical perspective, gold could face further downward pressure. Reuters technical analyst Wang Tao said spot gold remained on course to test the October 14 low of $4,073 per ounce, based on a wedge pattern.
However, a recovery above the $4,135 resistance level could open the way for further gains towards the $4,150–$4,169 range, suggesting that the market could experience renewed upward momentum if buying interest returns.
Other precious metals also recorded losses during Thursday’s trading session. Spot silver fell 2.6 per cent to $56.44 per ounce, while platinum declined 2.1 per cent to $1,594.25. Palladium dropped 2.6 per cent to $1,059.05 per ounce, reflecting broad weakness across the precious metals market as investors weighed the outlook for inflation and interest rates.