Key Points
- Despite rising geopolitical uncertainties, gold prices still fell below $3,900.
- U.S. inflation data is on the high side, reinforcing market expectations for a Fed interest rate hike in December.
- The strengthening of the US dollar and the rise in US Treasury yields have outweighed the safe-haven buying momentum.
On Thursday (November 12), gold prices fell below $3,900 per ounce, continuing the selling trend from three consecutive trading days. Market expectations for a Federal Reserve interest rate hike have risen, coupled with a stronger dollar, which has outweighed the demand for traditional safe-haven assets.
Spot gold fell by about 2.9% to $3,871.31 per ounce, hitting its lowest level since October 2025; in December, U.S. gold futures dropped by 3.2% to around $3,872. This decline erased most of the previous rebound that had pushed gold prices above $4,040.
The October inflation report released by the U.S. Bureau of Labor Statistics was a direct catalyst. The report showed that consumer prices rose by 0.4% month-on-month, higher than the economists' forecast of 0.3%.
Excluding food and energy, core inflation rose by 0.3%, which is also higher than expected. These data reinforce market expectations that the Federal Reserve will raise interest rates at its meeting on December 8-9.
The market estimates a probability of around 91% that the Federal Reserve will raise interest rates by 25 basis points; at the same time, speculation about larger rate hikes is also on the rise.
Normally, higher interest rates tend to diminish the attractiveness of gold, as gold itself does not generate interest. Rising yields on U.S. Treasuries make government bonds more attractive relative to gold, while a stronger dollar increases the cost for international buyers to purchase gold bars.
The US dollar once rose to near a 19-month high, putting further pressure on a market that has already struggled to maintain its recent rebound.
Despite the increasing uncertainties related to conflicts in the Middle East, why is gold still declining?
The weakening of gold reflects an unusual market contradiction: uncertainty surrounding the Middle East conflict is increasing, yet investors are selling this asset that is traditionally used to hedge against geopolitical risks.
Market concerns about Iran have resurfaced, along with the potential disruption of oil supply, driving up energy prices. Previous fluctuations in the oil market have already shown how quickly regional tensions can affect crude oil prices and inflation expectations.
Rising oil prices will create an unfavorable environment for gold. It may exacerbate inflation, lead to further tightening of monetary policy, and increase the opportunity cost of holding unprofitable assets.
This also explains why during the stock market sell-off in October, the gold price fell below $3,900, only to rebound briefly after the financial environment improved.
However, the structural demand for gold has not disappeared. The World Gold Council stated that central banks purchased 321 tons of gold in the third quarter, and ETF, which is backed by physical gold, attracted an additional 211 tons of capital inflow.
Gold Price Outlook: Can XAU / USD Return Above $4,000?
The latest decline in gold prices has once again made the $3,900 range a focal point for the market, as this area has previously proven to be an unreliable support level. If a sustained rebound can be achieved and the price can remain above $3,900, it would be the first sign of market stabilization; $4,000 represents an even more important psychological resistance level.
On the downside, if there is continued selling pressure, gold prices could fall to the $3,800 range. However, the next trend will largely depend on economic data and interest rate expectations.
The immediate catalyst is the U.S. Producer Price Index ( PPI ) report released on Friday. If the inflation data is stronger, it may further reinforce market expectations for the Federal Reserve to tighten policy; if the data is weaker, it may weaken the dollar and help gold prices stabilize.
The latest round of declines also poses a challenge to the previous rebound in gold prices, indicating that persistent inflation and higher borrowing costs can sometimes temporarily outweigh even strong demand for safe-haven assets.
