Gold drops over 1% as oil rally reinforces higher-for-longer rate outlook

Gold prices experienced a significant drop of over 1% on Thursday due to rising oil prices, which heightened inflation concerns and increased the likelihood of higher interest rates persisting for an extended period. Spot gold fell 1.1% to $4,094.90 per ounce, marking its lowest level since October 14. The USD gold futures for December delivery also declined 0.9% to $4,111.40.

Kelvin Wong, a senior market analyst at OANDA, explained that persistent inflation, primarily driven by high energy prices, supports the case for tighter monetary policy. However, Fed policymakers are anticipated to maintain a wait-and-see approach during the current meeting. While traders estimate a 16% chance of a rate hike during the Fed's October 27-28 policy meeting, they anticipate a 90% likelihood of an increase in December, as indicated by the CME's FedWatch Tool.

Investors are focusing on upcoming Personal Consumption Expenditures (PCE) data, a crucial indicator closely monitored by the Federal Reserve to achieve its 2% inflation target. Traders view higher interest rates at both the short and long ends of the yield curve as unfavorable for gold, as it raises the opportunity cost of holding this non-yielding asset.

Spot gold aims to recover from its recent low of $4,073 per ounce, which was reached on October 14, based on a technical analysis. Resistance is at $4,135, and a break above this level could propel gold to a range between $4,150 and $4,169, according to Reuters technical analyst Wang Tao. Silver prices dropped by 2.6% to $56.44 per ounce, platinum fell 2.1% to $1,594.25, and palladium declined 2.6% to $1,059.05.