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Gold drops 1% as US PCE inflation strengthens case for December Fed rate hike

FXStreet · 2026-10-29T11:12:26Z
Gold drops 1% as US PCE inflation strengthens case for December Fed rate hike
  • Gold loses ground as the Fed's hawkish stance weighs on the non-yielding metal.
  • US PCE inflation matches forecasts, while GDP growth beats expectations.
  • RSI and MACD signal weak momentum on the daily chart, while XAU/USD hovers above the lower Bollinger Band.

Gold (XAU/USD) extends its intraday decline on Thursday as the latest US Personal Consumption Expenditures (PCE) inflation data reinforce expectations of a Federal Reserve (Fed) rate hike in December after the US central bank held interest rates steady at its October meeting. At the time of writing, XAU/USD trades around $4,022, down 1.11% on the day.

The headline PCE Price Index rose 0.5% MoM in September, matching expectations and accelerating from August’s 0.3% increase. Annual inflation climbed to 3.6% from 3.4%, also in line with forecasts.

The core PCE Price Index, which excludes food and energy, increased 0.3% MoM, matching expectations and August’s reading, which was revised up from 0.2%. On an annual basis, core inflation rose to 3.1% from 3.0%, as expected.

The Federal Open Market Committee (FOMC) voted 10-2 on Wednesday to hold rates at 3.75%-4.00%. Governor Lisa Cook and Cleveland Fed President Beth Hammack favoured a 25-basis-point (bps) increase. Fed Chair Kevin Warsh reiterated his commitment to delivering price stability. Warsh noted that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.”

Analysts at Rabobank highlight that despite leaving policy unchanged, the Committee “indicated a need for more information to help determine the appropriate policy stance.” Chair Warsh underscored that the “FOMC will receive a lot more data in the weeks through the next meeting,” reinforcing the data-dependent nature of the Fed’s reaction function.

Rabobank’s US strategist concludes that, “without providing forward guidance, Warsh essentially made the case for a rate hike in December,” suggesting that the door to further tightening remains firmly open.

The latest PCE data show inflation remains above the Fed’s 2% target, partly reflecting higher energy costs linked to Middle East tensions. Meanwhile, the preliminary estimate of third-quarter Gross Domestic Product (GDP) showed the US economy grew at an annualised rate of 3.4%, above expectations of 3.2% and up from 2.2% in the previous quarter.

Sticky inflation and stronger growth reinforce expectations of a December rate hike, with the CME FedWatch Tool showing an 83% chance of an increase. However, the US Dollar struggles to build on its brief post-data gains, while Treasury yields remain on the back foot amid equity market jitters. Oil prices also trade slightly lower.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, eases toward 102.00 after reaching an intraday high of 102.33. Even so, Gold fails to benefit from the softer Dollar and lower yields as the prospect of further Fed tightening continues to weigh on the non-yielding metal.

Technical Analysis: XAU/USD holds above the lower Bollinger Band

On the daily chart, XAU/USD remains below the 20-day Simple Moving Average (SMA) at $4,112, which forms the middle Bollinger Band, keeping the near-term bias bearish. The Relative Strength Index (RSI) hovers around 38, pointing to weak buying momentum without reaching oversold territory. Meanwhile, the Moving Average Convergence Divergence (MACD) remains slightly negative, suggesting that sellers retain control.

On the upside, initial resistance stands at the 20-day SMA near $4,113, followed by the upper Bollinger Band at $4,230. A sustained move above these levels could open the door toward $4,400.

On the downside, the lower Bollinger Band near $3,995 and the previous support zone around $4,000-$3,950 are likely to keep further declines in check. However, a decisive break below this area could trigger a deeper decline.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.