Gold clings to $4,000 as December Fed hike bets firm

Gold maintained its position near $4,000 on Wednesday, as fresh US inflation data and the Federal Reserve's cautious tone bolstered expectations of a rate increase in December. The precious metal had dropped 2.6% the day before, trading at $4,030 an ounce. Spot gold rose 0.85% to $4,057.01 by 11:00 am Dubai time on Wednesday. In the UAE, 24K gold was priced at Dh487.75 per gram, while 22K and 18K gold were valued at Dh451.50 and Dh371.25 per gram, respectively. 14K gold was priced at Dh289.50 versus Dh288 in the previous day's close.

The US consumer price index for October exceeded forecasts, with analysts pointing to a "borderline disturbing" situation. Fed officials, including Chicago Fed President Austan Goolsbee and Dallas Fed President Lorie Logan, signaled the prospect of two or even three quarter-point rate hikes in December. Bloomberg quoted an expectation from Lorie Logan that a half-point hike in December would be necessary.

Diligent research strategist Dilin Wu warned that gold could face increased pressure in the near future due to the persistent high inflation and the strengthening dollar, which makes gold less attractive to buyers. Wu believes that gold may struggle regardless of whether risk assets or the dollar perform well. He cautioned that a significant sell-off in equities, driven by concerns over AI financing or a disappointing Anthropic IPO, could compel investors to liquidate their gold holdings to generate cash.

Conversely, a strong stock market could make gold less appealing as investors look for riskier assets to bolster their portfolios. A spike in oil prices resulting from geopolitical tensions could reignite inflation fears and reinforce the dollar's strength. Wu advised watching the $4,000 level closely, as a decisive break below could open the path to $3,960.

For gold to regain bullish momentum, it would need to reclaim the $4,100-$4,110 range. Wu remains "constructive" on gold over the medium term, citing central bank demand and lingering fiscal uncertainty as positive factors.