Gold falls to over one-year low below $3,900 amid inflation concerns, US PPI data looms
- Gold price tumbles to near $3,880 in Friday’s early Asian session.
- Inflation worries and hawkish comments from Fed officials reinforced expectations of higher interest rates.
- The US October PPI inflation data will be in the spotlight on Friday.
Gold price (XAU/USD) drops to a more-than-one-year low around $3,880 during the early Asian session on Friday. Persistent US inflation concerns and expectations of higher interest rates weigh on the precious metal. Traders will take more cues from the US October Producer Price Index (PPI) report later on Friday.
US President Donald Trump said on Thursday that the US did not need a deal with Iran, quashing hopes of a deal to end the conflict. Oil prices jumped after the news, fanning inflationary concerns.
"Higher energy prices continue to warrant a hawkish Fed, and a hawkish Fed is an environment of higher interest rates and hence a headwind for the yellow metal," said David Meger, director of metals trading at High Ridge Futures.
Stronger-than-expected US Consumer Price Index (CPI) inflation data released earlier this week also have reinforced expectations of a Fed rate hike in December. Fed Governor Christopher Waller said that a 50-basis-point rate hike should be considered if core inflation remains elevated.
Markets now see a 14.5% chance of a 50-basis-point hike, up from zero before Tuesday’s inflation report.
Attention will shift to Friday’s US PPI report for further clues on inflation and the US central bank’s decision on interest rates. The headline PPI is expected to show a rise of 6.6% YoY in October, while the core PPI is projected to show an increase of 5.0% YoY during the same report period.
Gold shines as risk-off tone offsets steady credit and mixed bond moves
Analysts at Deutsche Bank note that “credit was actually fairly flat on both sides of the Atlantic,” but the prevailing risk-off tone in equities translated into “a good week for gold, which was up +5.06% (-0.42% Friday) in its best week since August.” They add that “along with the risk-off tone from the AI selloff, that helped to bring down sovereign bond yields around the world.” Even so, the move in core rates has been uneven, with Deutsche Bank highlighting that “the 10-year US Treasury yield is up +1bps at 4.87% and Brent down around a percent as I type.”
Daly leans hawkish on inflation risks from AI, supporting Dollar upside
Daly’s speech scores 8.3/10 on the FXS Speechtracker, a clear hawkish tilt relative to the historical average of 6.5/10, with repeated emphasis on persistent inflation and a bias toward further tightening. The key remarks frame AI as a structural driver of productivity and potential future price pressures, but not the main culprit behind current inflation, reinforcing a narrative of solid growth, stable labor markets, and sticky services inflation that still demands policy restraint. Comfort with a September hike and the view that “inflation pressure is up, not down” underscore a policy stance that remains skewed toward additional rate increases, supportive for the Dollar versus the Euro and Yen.
The FXS Fed Sentiment Index rises by 1.01 points to 147.55, firmly in hawkish territory and consistent with the elevated FXS Speechtracker score. This move signals that markets should interpret Daly’s comments as reinforcing tighter-for-longer expectations, a backdrop that typically underpins the Dollar against major peers.
Technical Analysis: Gold retains a negative outlook below the 100-day SMA
In the daily chart, XAU/USD maintains a bearish near-term bias as spot holds beneath the 100-day Simple Moving Average (SMA) and the Bollinger Bands (20) middle band. Price is hovering just above the lower Bollinger band support, suggesting downside pressure remains dominant, while the Relative Strength Index (14) at 37.64 stays below the neutral 50 line, hinting at weak bullish conviction rather than outright oversold conditions.
On the topside, initial resistance is located at the Bollinger Bands middle band near $4,038, followed by the 100-day SMA around $4,200, with the Bollinger upper band at $4,205 acting as a higher technical cap. On the downside, immediate support is aligned with the lower Bollinger band at $3,870, and a sustained break below this zone would open the door for a deeper retreat, while recovery above the mid-band would be needed to ease the current bearish tone.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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