Gold price forecast: $4,000 tested as inflation fuels fears of a 50bps rate hike

Why the inflation report changed the gold trade

Gold had been in a strong position after crude oil fell. Cheaper energy prices mean headline inflation is lower, the Fed can stay patient, and Treasury rates will fall. However, gold has still benefited from concerns over government debt, equities and long-term inflation impacts. However, The October CPI data undermined this.

Although headline inflation eased to 0.4% MoM from 0.6%, it was still higher than the 0.3% expected. More importantly, core CPI rose by 0.3% for the third month in a row rather than falling to 0.2%. Shelter, food, medical services, and motor insurance all contributed. This means that inflation is no longer just an issue with crude oil.

While lower crude oil prices help the Fed with the energy element of inflation, it does not help with increasing rent, service and insurance prices. These elements do not react as quickly to monetary policy, so are harder to ignore.

Source: U.S. Bureau of Labor Statistics

Waller turned the CPI surprise into a policy shock

With an 84% probability of a December hike already priced, the CPI report had limited scope to hurt gold simply by confirming 25 basis points. The market did not react only because Waller is considered one of the Fed’s more hawkish members.

His comments marked the first time a Fed policymaker had openly put a 50-basis-point December hike on the table. That changed the calculation: a stronger inflation reading would no longer merely confirm a hike; it could change its size.

Once core CPI reached Waller’s 0.3% threshold, the probability of a half-point increase rose to around 13%. That remained a secondary scenario, but it left gold investors facing an uneven trade: little upside from a quarter-point hike that was already expected and considerably more downside if the Fed accelerated.

The selloff reflected that imbalance, rather than a sudden belief that 50 basis points had become the most likely decision.

Source: CME Group

Why buyers returned near $4,000

Although we have seen a sharp sell-off, gold has not fallen too far, having only fallen near 3%. Once gold approached $4000, buyers started to push back in. The market had already accepted that there was a high chance of a rate hike in December.

The data just altered how large a rate hike there would be

Lower oil prices It is unlikely to affect the December decision as the Fed are now focused on the persistent core inflation. Whether oil rises or falls ahead of the meeting, a quarter point hike is expected.

However, if crude stays low, this should filter through to transport, production and headline inflation, this means the Fed could raise rates in December and then pause, so buyers are not pushing back in due to the immediate rate risk but are looking further ahead.

Long-term demand Central banks purchased 321 tonnes in Q3, and gold ETFs increased by 211 tonnes. Gold ETFs increased further by 19 tonnes in October, reaching a record high of 4275 tonnes.

This will help support the price at $4000; however, it may not be enough to kickstart the rally. North American funds saw some small outflows in October, meaning US investors remain cautious. A move above $4100 will likely need clearer signs that December marks the end to the tightening cycle.

Technical outlook

Gold continues to trade under selling pressure near $4,034 after another failed attempt to break above the $4,080–$4,100 resistance zone. The recent recovery from $3,886 has lost momentum, with prices facing renewed selling near $4,150 and remaining below the declining moving average around $4,231.

Although gold has managed to break above the descending trendline from the $4,700 area, the broader structure remains bearish, with lower highs continuing to limit the recovery. The rising trendline from $3,886 is now providing short-term support, while the $4,000–$4,003 area remains important for maintaining the recent rebound. Below this, $3,941 and $3,886 are the next key support levels.

Source: Trading view

Scenario ahead

For buyers to get back in control, gold must break above $4065 to create a sustained move above $4085. This would also help with the case for a rally above the downward moving average. From here, gold would look to test $4125-$4145 next.

This is a key level as we have seen consistent selling interest during recent rallies. It is also a key level as it aligns with the wider downward trendline. If we can confirm a breakout above $4145 this suggests that the downtrend in higher highs is starting to reverse, which could see gold head towards $4222.

On the downside, the immediate focus is on the upward moving support level around $4020-$4030, gold recently broke back up from this level, however failed to push higher as it struggled to break above $4065.

This suggests that buyers are still struggling to push the price higher, so a clear breakdown below $4020 will hurt the short-term bullish pattern and could encourage another bout of selling towards $4000.

If $4000 doesn’t hold, the next key support level will be $3960. This is a previous reaction level that could see buying come back in.

If gold breaks below this level and creates a sustained move lower, this increases the chances of a deeper correction towards $3886 where the recent rally began.

Source: Trading view