Gold Falls Below $4,100 to Lowest Since Early August After 3.7% CPI Lifts Fed Hike Bets

Since the Federal Reserve raised rates in September for the first time since 2023, inflation has kept running hotter than forecast. Wednesday's September CPI report, which showed annual inflation at 3.7%, has now hit the metal that is supposed to protect against it.

Gold fell below $4,100 an ounce on Wednesday, Oct. 14, its lowest level since early August. It traded at $4,094.57 as of 1310 GMT, down 1.61%, and at one point slid as much as 1.9% to below $4,090. That followed a 1.3% drop the session before.

Silver took the worse hit. It fell 3.9% to $59.80 an ounce at the same point in the day, and Bloomberg reported silver was holding a 6% loss from the previous session. Platinum and palladium also fell, with palladium down 2.6%. Copper dropped 0.4% on the London Metal Exchange.

Why a hot inflation print hurts gold

Gold pays no interest. Higher Fed rates make it less attractive against Treasuries, and the dollar added to the pressure. The U.S. dollar rallied 0.4% on the day, and the dollar index reached an 18-month high.

The Bureau of Labor Statistics reported that consumer prices rose 0.6% in September, the biggest monthly gain in five months. Energy costs drove the increase. Core inflation, which strips out food and energy, rose 0.3% on the month and reached 2.6% annually, up from 2.4% in August, and came in above expectations.

Mining.com's wire report added that a flare-up in attacks in the Middle East is stoking worries about further disruption to regional energy supplies. That would feed inflation and strengthen the case for higher borrowing costs.

Rate-hike pricing is split on October

The numbers depend on which tracker you read. LSEG data show markets pricing about a 50% chance that the Fed holds in October, down from more than 78% before the CPI release. Bloomberg's pricing put the odds of an October hike at more than 50%.

The CME FedWatch Tool, cited by analyst FX Empire, showed a lower 37.1% probability of an October hike. That analysis said traders still expect the Fed to pause at that meeting.

On December, the trackers line up. LSEG data put the probability of a hike at nearly 99%, up from 88% before the report. Bloomberg reported traders now see three increases by April.

The Fed's own signals point the other way on timing. Top officials have said they have time to weigh incoming data before acting again, and recent Fed communications offered little indication of back-to-back hikes. Even so, the median official expects one more increase this year, according to the latest projections.

The hotter core reading is what put an October move back in play. Core inflation exceeded expectations, which undercuts the argument that gasoline alone is driving prices.

Bond yields and price levels to watch

Treasury yields were mixed after the report, according to FX Empire. The 2-year yield climbed toward 4.81%, while the 10-year pulled back to 5.19% from session highs. That pullback did not help gold.

FX Empire's technical read has gold trying to settle below $4,100. If it does, the nearest support sits in the $4,000 to $4,020 range, and a break below $4,000 would open a test of $3,950. For silver, support is at $56 to $57, with the next level at $51 to $52. Those are one analyst's chart levels, not forecasts from the Fed or the data.

Precious metals are now being priced on rate expectations, not as an inflation hedge. A hotter-than-expected inflation report is landing as a negative for gold because it raises the odds of tighter policy.

The next test is the Fed's October meeting. The central bank's decision will show whether policymakers follow the market's December pricing or move sooner, and whether gold's drop to its lowest level since early August extends toward the $4,000 mark.