Gold lacklustre as higher-for-longer rate outlook weighs on sentiment

Gold prices dipped on Wednesday as investors contemplated central banks' decision to maintain higher interest rates for an extended period to combat inflation. The spot gold price fell by 0.2% to US$4,345.99 per ounce, while US gold futures for December delivery rose by 0.2% to US$4,382.70. A stronger US dollar, which makes dollar-denominated bullion more costly for international buyers, also contributed to the decline.

Short-term fluctuations in gold prices are heavily influenced by oil prices and events in the Middle East. However, gold's long-term appeal as a hedge against inflation remains robust. Kyle Rodda, a senior financial market analyst at Capital.com, noted that while gold is typically viewed as a safe haven during inflation, its attractiveness diminishes when higher rates enhance returns on interest-bearing investments.

US President Donald Trump threatened military action against Iran if a deal to end the conflict was not reached, but also hinted at a potential agreement soon after intense diplomatic efforts at the United Nations. Susan Collins, the president of the Boston Federal Reserve, expressed her support for the US central bank's recent decision to raise interest rates amidst concerns that inflation could remain above the 2% target.

Collins, who is not a voting member of the Federal Open Market Committee this year, did not indicate a preference for further rate hikes at this time.

The Federal Reserve previously increased its benchmark rate by 25 basis points to 3.75%-4.00% at the end of the previous week, signaling that additional rate hikes might occur before the end of the year. The Bank of Japan and the European Central Bank have also raised interest rates in recent months.

Analysts at BMI have retained their 2026 gold price forecast at an average of US$4,400 per ounce, citing elevated geopolitical risks and ongoing central bank purchases as factors that should provide a solid support base for gold around the US$3,800 level. Silver, platinum, and palladium prices also experienced declines on the same day, with spot silver falling 0.4% to US$66.78 per ounce, platinum dropping 0.8% to US$1,818.21, and palladium decreasing 0.4% to US$1,302.61.