Gold slides towards $4,000 before Federal Reserve meeting

Gold prices slipped on Friday, nearing their steepest weekly decline in over four months as increasing energy costs fueled expectations of the US Federal Reserve maintaining high interest rates. Spot gold traded near $4,021 per ounce, marking a weekly drop of about 3.6 percent. US gold futures fell 0.6 percent to approximately $4,035, bringing the critical $4,000 level into sharper focus before the central bank’s October 27-28 policy meeting.

This decline followed another tough session on Thursday, when gold futures for October delivery closed at $4,042.80, down 2.12 percent – the lowest point since early August. Traders anticipate the Fed to keep borrowing costs unchanged at the October meeting, with a much higher chance of a rate hike in December. The Federal Reserve’s outlook remains uncertain, with shifting probabilities highlighting the timing of the next policy move.

Investors are evaluating whether persistent inflation, especially from energy prices, will compel policymakers to tighten monetary conditions despite broader economic concerns. Higher interest rates typically reduce gold’s attractiveness since the metal offers no interest income. Soaring Treasury yields boost potential returns from government debt, while a stronger dollar makes gold more costly for buyers in foreign currencies.

Oil prices have emerged as a key factor influencing the interest rate outlook, with tensions around Saudi energy infrastructure raising concerns about potential supply disruptions and the inflationary impact of further disruptions. The market’s focus has shifted to the Fed’s policy statement and the upcoming personal consumption expenditures price index, a key measure of US inflation.

A higher inflation reading could strengthen the case for a December rate increase, while softer data might lessen the need for further tightening. Traders will also scrutinize the central bank’s language for insights into how much weight they place on energy-driven price increases versus underlying inflation trends. Gold’s drop has rippled through other precious metals, suggesting the revaluation of interest rate expectations is impacting the entire sector.

European Central Bank economists have noted that the region’s resilience to higher energy prices, due to lower reliance on fossil fuels, fiscal support, and AI investment, has helped it weather the current energy shock better than expected. For gold traders, the forthcoming US inflation release will provide another clue on whether the rise in energy costs is permeating broader prices, a crucial factor for officials determining the extent of monetary policy restrictions.