Oil, equities, and inflation shaping gold ahead of Fed's December meeting, Standard Chartered says

The decline in gold after the CPI release underscores its strong correlation with Fed rate hike pricing and, by extension, crude oil. Since a quarter-point rate increase in December is already fully priced in, any increase in the probability of a half-point move could drive bullion towards the support level flagged by Standard Chartered, near $3,886. Equities now represent a third factor; risk-off shifts in equities have not provided consistent support for gold during this conflict. Standard Chartered's projection of a softer dollar and ongoing central bank purchases gives long-term holders reason to remain, but the near-term path depends on December's decision.

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Central bank officials are emphasizing inflation concerns:

• Fed’s Goolsbee calls CPI ‘borderline disturbing’, flags three inflation worries
• Fed’s Paulson backs further gradual rate hikes, names three triggers for faster action
• More from Fed’s Bowman: Shifts focus to inflation, wants AI and Middle East risks to ease first

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Gold has maintained its position above $4,000, but with oil fueling expectations of a Fed rate hike, Standard Chartered's $4,700 target relies on a weaker dollar materializing later rather than sooner.

Key points:

• Gold remains above the crucial $4,000 level, influenced by oil, inflation risks, and equity markets, according to Standard Chartered.
• Spot gold fell nearly 3% to around $4,020 on Tuesday after October CPI rose 0.4% month-on-month, against a 0.3% forecast.
• A quarter-point Fed rate hike in December is fully priced in, and the odds of a half-point increase rose to about 10%.
• Standard Chartered stays overweight gold, with three-month and 12-month targets of $4,350 and $4,700.
• The bank expects Fed hikes in December and H1 2027, peaking at 4.25% to 4.50%, and has identified $3,886 as key support.

Standard Chartered noted that gold is still maintaining its position above the key $4,000 per ounce threshold despite a significant sell-off following stronger-than-expected U.S. inflation data. According to the bank, crude oil, inflation risks, and equity markets are setting the tone as traders turn their attention to the Fed's December meeting.

On Tuesday, spot gold declined nearly 3% to around $4,020 per ounce in the U.S. session, and December futures fell close to 2% to approximately $4,035. The metal had opened above $4,100 for the first time since October 22 but reversed course after October consumer prices increased 0.4% month-over-month, exceeding the 0.3% forecast. The data boosted the dollar and Treasury yields, which increased the opportunity cost of holding non-yielding bullion.

Expectations for rate changes shifted with the data. A quarter-point Fed rate increase in December is now fully priced in, and the likelihood of a half-point move climbed to approximately 10% from zero prior to the release, according to CME FedWatch. Fed Governor Christopher Waller had previously stated that a hot CPI reading could prompt him to back a larger hike.

Standard Chartered's longer-term outlook remains positive. In a report earlier this month, the bank said it stays overweight on gold but reduced its three-month target to $4,350 per ounce and its 12-month target to $4,700. The bank expects the Fed to raise rates in December and again in the first half of 2027, reaching a peak of 4.25% to 4.50% before easing in the latter half of next year. A weaker dollar and ongoing purchases by emerging-market central banks should boost gains over 12 months, according to the bank, even though rising bond yields and a stronger dollar have been recent obstacles.

Standard Chartered has also highlighted downside risk in the short term. In late October, it cautioned that gold needs to maintain support around $3,886 after falling below $4,000, or face a more significant correction.

The trend this year has been evident: increasing oil prices from the Iran war have fueled inflation and Fed rate hike expectations, and gold has suffered under that strain instead of appreciating as a safe haven. With the December decision approaching, oil and upcoming inflation data will determine whether the $4,000 floor holds.