• Spot gold falls over 1% as investors weigh higher oil prices and Fed tightening.
  • December rate hike odds rise to 91%, pressuring non-yielding bullion.
  • Analysts warn of further downside amid energy market uncertainty.

Gold prices retreated sharply on Thursday, with spot bullion dropping as much as 1.4% to $4,081.89 per troy ounce, its lowest level in more than two weeks. The move came as investors shifted focus from geopolitical safe-haven demand to the inflation and interest-rate implications of rising energy costs. December U.S. gold futures also fell 1.3% to $4,097.90. A separate market snapshot showed spot gold near $4,063.86, though that print could not be independently verified as a closing price.

The sell-off underscores a classic dynamic: gold, which pays no interest, often struggles when inflation fears push investors to anticipate tighter monetary policy. Oil prices climbed more than $2 a barrel following renewed Houthi attacks on Saudi targets, stoking concerns about supply disruptions and persistent inflation. Recent U.S. consumer and producer price readings came in hotter than expected, largely due to energy costs, reinforcing expectations that the Federal Reserve will maintain a hawkish stance.

Rate Hike Odds Climb

Traders are now pricing a roughly 91% probability of a quarter-point rate increase at the Fed’s December meeting, according to market estimates. The central bank is still widely expected to hold rates steady at its October 27–28 gathering, but the inflation data has sharpened focus on the subsequent meeting. The Fed already raised its benchmark rate by 0.25 percentage point in September to a range of 3.75%–4.00%.

“The market is repricing the Fed’s reaction function to higher energy prices,” said one strategist, who declined to be named because of the sensitivity of the matter. “Gold’s appeal as an inflation hedge is being offset by the opportunity cost of holding a non-yielding asset when rates are expected to rise.”

The weakness extended across precious metals, with silver down about 2.8% and platinum off 2.3% in early trading. The broad decline suggests that investors are not merely rotating out of gold but reducing exposure to the entire complex amid a shifting macro backdrop.

Energy Prices in Focus

The immediate catalyst for the sell-off was a jump in oil prices after Houthi attacks on Saudi infrastructure raised fears of supply disruptions. Higher energy costs feed directly into inflation expectations, which in turn influence monetary policy. For gold, the transmission mechanism is indirect but powerful: geopolitical turmoil might typically boost safe-haven demand, but when it drives inflation and rate expectations higher, the net effect can be negative.

ANZ (ANZ.AX) analyst Soni Kumari warned that gold could face further pressure due to continuing uncertainty in energy markets. Capital Economics economist Hamad Hussain noted that uncomfortable inflation readings could encourage hawkish Fed communications, weighing on bullion. Goldman Sachs (GS) expects another quarter-point increase in December, which would take the policy-rate range to 4.00%–4.25%.

Caution Ahead

Investors will closely watch the Fed’s October 27–28 meeting and the October 29 release of the U.S. Personal Consumption Expenditures inflation data for further direction. A hawkish tone from policymakers could accelerate gold’s decline, while any signs of easing inflation might offer relief. For now, the market is focused on the tension between gold’s defensive appeal and the cost of holding an asset that generates no income.

Correction: An earlier version of this article misstated the date of the Fed’s October meeting. It is October 27–28, not October 27–29.