Gold drops 1% on hawkish Fed comments ahead of US inflation data

Gold prices slipped more than 1% on Tuesday following hawkish remarks from a US Federal Reserve official. The official cautioned that aggressive monetary policy could be necessary if inflation persists, causing bullion to lose ground ahead of the release of US consumer price data. Spot gold was down 1.6% at $4,071.07 per ounce by 11:53 GMT, while US gold futures for December delivery fell 0.9% to $4,079.80 per ounce.

UBS analyst Giovanni Staunovo noted the unexpected shift in the rate and dollar situation, as rates are no longer declining as they once were. The dollar steadied on Tuesday after experiencing a turbulent few days, partly due to hawkish remarks from Federal Reserve Governor Christopher Waller. With US inflation data imminent, which could bolster the currency further if rate hike expectations intensify, short-dated Treasury yields surged in London trade on Tuesday following Waller's comments.

The Federal Reserve is expected to increase short-term borrowing costs next month, even if government data indicates a cooling of inflation, according to Waller. He also suggested considering an oversized half-point rate hike if inflation conditions worsen. Gold's decline was attributed to the growing focus on US inflation data.

Traders now estimate a 99% probability that the Fed will raise rates in December, according to CME's FedWatch tool. Although gold is often viewed as an inflation hedge, higher interest rates tend to diminish the allure of non-yielding bullion. Market attention now shifts to US consumer price data at 13:30 GMT later on Tuesday and producer price figures due on Friday, which could influence expectations for the Fed's subsequent actions.

Core CPI, excluding volatile food and energy prices, is expected to have risen modestly by 0.2% last month from September, according to Reuters surveys. If the actual number exceeds 0.3%, it could reignite rate hike concerns and potentially weigh on gold prices. If the figure falls below or equals 0.3%, it would likely support gold.

Among other metals, spot silver dropped 2.1% to $52.27 per ounce, and palladium declined 1.3% to $1,027.97.