Gold falls below $4,000 as traders weigh a half-point Fed rate hike

Gold prices dipped below $4,000 on Thursday, as traders anticipated a half-point rate hike from the Federal Reserve (Fed). The US Dollar (USD) gained strength, reaching a year-to-date high, while Gold recovered from its intraday low of $3,924. The US Dollar Index (DXY) hovered near 102.88, down from its peak of 103.08. Fed Governor Christopher Waller had suggested a 50-basis-point (bps) hike in December, but traders now expect two hikes of 25bps each, starting in January.

Analysts from MUFG/BTMU noted that there are currently around 28bps of hikes priced for December and 43bps for January. The combination of hawkish Fed statements and a US CPI beat has strengthened the Dollar, with the DXY nearing Liberation Day levels. Gold, a safe-haven asset, has traditionally been favored during turbulent times, as it is not tied to any specific issuer or government.

Central banks are the largest holders of Gold, often increasing their reserves to support their currencies in turbulent times. Gold's inverse correlation with the USD and risk assets makes it particularly sensitive to interest rate changes. As a macro-focused analyst, I examine economic trends to provide traders with actionable insights, considering factors such as geopolitical events and central bank policies.