Rising oil prices and inflation weigh on gold

BENGALURU

Gold fell below $4,000 an ounce on Oct. 30 as rising oil prices and persistent U.S. inflation reinforced expectations of a Federal Reserve interest rate increase before the end of the year.

Spot gold was down 0.6 percent at $3,997.39 an ounce by 0255 GMT. U.S. gold futures for December delivery also fell 0.6 percent to $4,007.80.

The metal was heading for a second consecutive monthly decline, with traders pricing in about a 75 percent chance of a December rate increase, according to CME Group’s FedWatch tool.

U.S. data released on Oct. 29 showed the personal consumption expenditures price index rose 0.5 percent in September, accelerating from 0.3 percent in August. The index was up 3.6 percent from a year earlier, above the Fed’s 2 percent inflation target.

Excluding food and energy, prices rose 3.1 percent from a year earlier, the Bureau of Economic Analysis said.

The Fed had kept its benchmark rate unchanged at 3.75-4 percent on Oct. 28, though two policymakers voted for a quarter-point increase. Its statement said inflation remained elevated.

Gold pays no interest, making it less attractive when returns on interest-bearing assets rise.

“Gold’s slide is asking serious questions of technical support around the $4,000 level,” said Tim Waterer, chief market analyst at KCM Trade.

Buying on price dips had previously limited losses, but it was unclear whether that would support prices again, he said.

Oil was on course for a fourth consecutive monthly gain as attacks on Saudi Arabia raised supply concerns. Yemen’s Iran-aligned Houthis said on Oct. 29 that they had attacked several Saudi oil facilities.

Higher energy costs threaten to sustain inflation through transport and production expenses, adding to pressure on central banks to keep monetary policy tight.

In Japan, Tokyo’s annual core inflation remained above the Bank of Japan’s 2 percent target in October.

Other precious metals also fell. Spot silver dropped 2.1 percent to $51.27 an ounce, platinum lost 1.9 percent to $1,458.85 and palladium declined 2 percent to $986.08. All three were heading for weekly and monthly losses.