Gold Drops Below $4,000 Again. Will Friday’s Inflation Data Deepen the Slide?
Gold prices fell to $3,963.44 on Thursday, dropping below $4,000 for the third time since late October as traders brace for Friday's Producer Price Index report.
The drop comes after October's Consumer Price Index rose 0.4% on the month, exceeding forecasts of 0.23%. This has led traders to fully price in a December Fed rate hike, with the odds of a half-point move jumping to 11.2% from zero just a week ago.
Two-year Treasury yields have climbed 25 basis points this week, while the US dollar gauge reached a 19-month high. Both developments weigh on gold, which pays no interest and becomes more expensive for most buyers when the dollar strengthens.
Inflation Data Could Deepen Slide
Friday's PPI report will be crucial in determining whether bets on a larger Fed hike grow. Economists expect October PPI to rise 0.4% on the month, down from September's 1.3% increase. A hotter-than-expected reading could push gold further down.
A PPI reading above forecasts could deepen gold's recent slide.
Central Bank Buying Provides Support
Despite the recent decline, gold has received support from central bank purchases. China's central bank added 25.8 tonnes in October, marking its 24th consecutive monthly purchase and the largest of this streak. Globally, central banks bought 321 tonnes in the third quarter, up 42% year on year.
Gold ETF flows show regional differences. While North American funds saw outflows of $512 million in October, global gold ETFs still added $2.7 billion, with European funds leading with $1.8 billion and Asian funds contributing $1.3 billion.
StoneX strategist Bob Haberkorn noted that third-quarter central bank buying has put a floor under gold prices, even as Fed policy works against the metal. Friday's data and the Fed's December 9 decision will test whether this support can continue to cushion gold's losses.
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