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

Gold prices slipped on Wednesday as investors grappled with the possibility of major central banks maintaining higher interest rates for an extended period to combat persistent inflation. Spot gold declined 0.2% to $4,345.55 per ounce, while US gold futures for December delivery increased by 0.2% to $4,383.10. The US dollar stabilized near its strongest level in two months.

A stronger dollar increases the cost of gold for overseas buyers denominated in greenback. Kyle Rodda commented that short-term gold volatility is largely influenced by oil prices and Middle East developments, but long-term structural factors driving gold remain robust. Despite gold's reputation as an inflation hedge, its allure diminishes when higher rates enhance returns on interest-bearing assets.

US President Donald Trump threatened military action against Iran if a peace deal for the ongoing war is not reached, yet also hinted at a possible accord soon following a diplomatic push at the United Nations. Susan Collins, the President of the Boston Federal Reserve, expressed support for the US central bank's decision to raise interest rates amid concerns of future inflation exceeding the 2% target.

Collins, who does not have a voting role on the Federal Open Market Committee this year, did not comment on the possibility of further rate hikes. The Federal Reserve increased its key rate by 25 basis points to 3.75%-4.00% last week and indicated another hike could occur before the end of the year. The Bank of Japan and the European Central Bank have also raised interest rates recently.

BMI analysts kept their 2026 gold price forecast at an average of $4,400 per ounce, noting that elevated geopolitical risks and ongoing central bank purchases are likely to sustain a solid floor for gold near the $3,800 level. Meanwhile, silver prices dropped 0.6% to $66.70 per ounce, platinum fell 1% to $1,815.11, and palladium declined 0.5% to $1,301.60.