Gold dips as accelerating U.S. inflation spurs Fed rate hike bets

Gold prices fell on Wednesday, as traders assessed the Federal Reserve’s outlook for further monetary policy tightening following a September U.S. inflation report which was mostly hotter than expected. 

At 06:06 ET (10:06 GMT), spot gold had fallen 1.5% to $4,100.16 an ounce, while gold futures declined by 1.3% to $4,122.59 an ounce.

Headline and underlying U.S. consumer price growth accelerated by more than anticipated on an annualized basis in September, underlining the impact of an energy shock linked to the Iran war that could factor into Federal Reserve interest-rate decisions over the rest of the year.

Gulf supply constraints due to an expanding conflict in the Middle East drove up energy prices last month, despite reports that supplies out of the region were improving.

The energy portion of the Labor Department’s consumer price index gained 5.2% in September following a 2.1% increase in August. Gasoline prices, in turn, jumped by 9.1%, accounting for over half of the monthly rise in all items, the Labor Department said.

The numbers are likely to be closely monitored by Fed officials, especially with the central bank’s October 27-28 gathering coming before the release of the personal consumption expenditures price index, one of policymakers’ preferred inflation metrics.

Last month, the Fed hiked rates by a quarter of a percentage point, citing a desire to cool inflation back down to its 2% target level. It was the central bank’s first rate increase since 2023.

"Inflation pressures are broadening beyond energy, suggesting the last mile back to target could remain bumpy and keep interest rates elevated," said Jeffrey Roach, Chief Economist at LPL Financial.

The hotter-than-anticipated core CPI figure, in particular, puts an October rate hike "back in play," said Can-Luca Koymen, Investment Strategist at Sygnum Bank.

Following the CPI report, bets grew that the the Fed could lift rates again this month. According to CME FedWatch, there is now a 43.7% chance of another 25-basis-point borrowing cost rise, versus roughly 22% a day ago. Meanwhile, the probability that the Fed will stand pat on rates fell to around 56% from 78%.

Higher interest rates generally weigh on gold because bullion does not pay interest. The metal has fallen around a fifth from its levels since the Iran war erupted in late February, as energy-driven inflation concerns and central bank tightening weighed on prices.

Meanwhile, the U.S. dollar index, which tracks the greenback against a basket of global currencies, inched up 0.6% to 102.81. A stronger dollar can make gold less attractive to overseas buyers.