Gold prices extended their decline on Thursday, slipping to their lowest level in more than a week as stronger-than-expected US inflation figures and hawkish signals from Federal Reserve officials strengthened the dollar and raised expectations of further interest-rate increases.
Spot gold was down 0.2% at $3,977.99 per ounce by 0506 GMT, after touching its lowest level since November 4 earlier in the session. US gold futures for December delivery fell 0.4% to $3,983.20 per ounce.
The decline came as the US dollar climbed to a 19-month high against major currencies, making bullion priced in dollars more expensive for buyers holding other currencies.
Inflation data strengthens rate hike expectations
The pressure on gold followed US inflation data released on Tuesday, which showed consumer prices rising by 0.4% in October, exceeding economists' expectations of a 0.3% increase. Core inflation, which excludes food and energy prices, also rose 0.3%, marking its third consecutive monthly increase.
The figures strengthened the case for tighter monetary policy, with Federal Reserve policymakers indicating that they could raise interest rates more aggressively to contain persistent inflation. Markets have consequently increased their bets on a rate hike at the central bank's December meeting, with traders also anticipating another increase in March next year, according to the CME FedWatch tool.
Expectations of a larger-than-usual increase have also gained traction. Markets began factoring in the possibility of a 50-basis-point hike after the inflation report and comments from Fed officials, although a 25-basis-point increase remains the more widely anticipated move.
Gold's recent weakness has reflected the changing outlook for US monetary policy. Although the precious metal is traditionally considered a hedge against inflation, higher interest rates tend to make it less attractive because it does not generate interest or other regular returns. A stronger dollar adds to the pressure by increasing the cost of bullion for international buyers.
Analysts assess gold's near-term outlook
Ilya Spivak, head of global macro at Tastylive, said gold had experienced a significant correction over the preceding days following the US inflation figures and the resulting increase in rate-hike expectations. However, he noted that the market was struggling to sustain the downward momentum.
The sell-off continued later in Thursday's trading session. Gold fell for a third consecutive day, declining 1.4% to $3,931.54 per ounce and touching its lowest level since November 4. US December gold futures were down 1.6% at $3,936.80.
Investors are now looking towards the US Producer Price Index (PPI) report, scheduled for Friday, for further indications of the direction of inflation and the Federal Reserve's policy outlook.
Analysts at OCBC said the near-term outlook for gold remained exposed to movements in oil prices, bond yields and the US dollar. They added that although the broader economic environment had become less favourable for the metal, they were not turning bearish on its medium-term prospects.
Palladium gains as other precious metals move
Meanwhile, other precious metals recorded mixed movements. Spot palladium rose 0.5% to $1,032.63 per ounce on Thursday, after reaching its highest level since October 22 on Wednesday.