Sharp retreat from gold. Higher US CPI opens the door to a 50 bps rate hike in the US

Gold futures are experiencing a sharp slump, dropping nearly 3% during today's session.  The drop in the precious metal is the direct result of two overlapping impulses: a sharp escalation in expectations regarding the Federal Reserve and a decline in the war premium following Donald Trump's conciliatory remarks on the Middle East. 

The main driver of the sell-off was a hotter-than-expected US CPI inflation reading, where the core rate rose by 0.3% month-over-month. The report immediately prompted a hawkish reaction from Fed officials. Policymakers delivered clear signals that, to protect central bank credibility, a more decisive pace of policy tightening may be necessary, and an option for a December interest rate hike of as much as 50 basis points instead of the standard 25 bps appeared on the table. 

Debt markets reacted strongly, with the 2-year US bond yield surging by 19 basis points to 4.75%, marking its sharpest single-day jump in months. Concurrently, the dollar gained against all major currencies. Faced with the prospect of aggressive Fed moves and fading fears of conflict escalation, capital is leaving the precious metals market without hesitation in favor of safe, high-yielding debt. 

After rebounding from around the low near $3,870, gold bounced directly off the resistance defined by the 50-day moving average (50 EMA near $4,142). Remaining below the cluster of the 50, 100, and 200 EMAs (the 4,140–4,260 area) reinforces the medium-term downward trend and threatens a retest of the psychological $4,000 level and the November lows. 

Source: xStation5