Gold suffered a sharp selloff this week, weighed down by a combination of stubborn inflation and rising expectations of Federal Reserve tightening, putting the metal on track for its largest weekly decline since June.
Spot gold briefly clawed back some ground on Friday but could not shake off its weekly weakness. As of 4:10 p.m. New York time on Friday, spot gold stood at $3,876 per ounce, unchanged from Thursday's New York close, with a cumulative weekly loss of 4.78%.
The prior day, gold prices had fallen to a 13-month low. U.S. consumer price data exceeded expectations for a third consecutive month, triggering a repricing of aggressive Fed rate hike expectations, while a stronger dollar and rising Treasury yields created a dual headwind for gold.
Fed officials collectively delivered hawkish signals this week. Fed Governor Waller said he would support a single 50-basis-point rate hike if inflation continues to accelerate. New York Fed President John Williams, Chicago Fed President Austan Goolsbee and Boston Fed President Susan Collins also successively called for further action to curb inflation.
Rate Hike Expectations Repriced, Gold Under Clear Pressure
With consumer price data surpassing expectations for a third straight month, traders significantly raised their bets on further Fed rate hikes through 2027 and began pricing in the possibility of a single 50-basis-point hike in December starting Tuesday of this week.
The shift in rate hike expectations pushed U.S. Treasury yields higher, and the dollar strengthened accordingly. Because gold generates no interest income and is priced in dollars, both rising yields and a stronger dollar act as direct drags on the metal.
Silver fell in tandem this week, dropping 2.36% on Friday, while platinum declined and palladium posted a modest gain.
Despite the evident short-term selling pressure, market institutions are increasingly divided on gold's longer-term outlook. Ryan McKay, senior commodity strategist at TD Securities, noted:
The gold bull camp, including macro funds, ETFs and central banks, has shown limited buying momentum recently, leaving the market increasingly vulnerable to shifts in Fed rate hike expectations.
However, McKay also stressed that strong support for gold remains intact. He said:
Overall positioning among non-trend-following investors has yet to show clear signs of liquidation, and lower prices may once again attract this group of investors, who remain focused on long-term currency debasement and de-dollarization themes, to enter and build positions.
From a market structure perspective, energy price-driven inflation trends and Fed officials' rhetoric will continue to dominate gold's price trajectory in the near term.
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