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Gold holds near one-week low as hot US inflation boosts Fed hike bets

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In short

Following October's accelerated inflation print, market pricing now reflects a certainty of a December rate increase by the Federal Reserve. Spot gold attempted a modest rebound of 0.2% to $4,039.07 per ounce after suffering a steep drop of nearly 3% in the prior session. Although Fed Vice Chair Michelle Bowman expects price pressures to ease next year, policymakers remain firmly committed to restoring price stability. Concurrently, Singapore announced tax breaks and foreign central bank vaulting services to strengthen its global precious metals presence.

Key points

  • Accelerating inflation data has solidified market expectations for aggressive interest ra…: Accelerating inflation data has solidified market expectations for aggressive interest rate hikes by the Federal Reserve next month.
  • Rising interest rates continue to undermine the appeal of holding non-yielding precious m…: Rising interest rates continue to undermine the appeal of holding non-yielding precious metals despite persistent inflation pressures.
  • Singapore is working to capture a larger share of the global metals trade through tax cut…: Singapore is working to capture a larger share of the global metals trade through tax cuts and specialized storage offerings.

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FUNDAMENTALS

Spot gold was up 0.2% at $4,039.07 per ounce, as of 0025 GMT, after falling nearly 3% in the previous session. US gold futures for December delivery rose 0.4% to $4,046.40.The odds of a half-percentage-point Fed rate hike next month surged on Tuesday after data showed US inflation accelerated more than expected in October and policymakers signalled a willingness to tighten policy more aggressively.

Traders now see a 100% chance of a rate increase in December, up from 84% before the data, according to CME's FedWatch tool.

Although gold is typically seen as an inflation hedge, higher interest rates increase the opportunity cost of holding non-yielding bullion, reducing its appeal to investors.

Fed Vice Chair of Supervision Michelle Bowman joined a growing number of policymakers on Tuesday in stressing that bringing down inflation remains the central bank's top priority, though she stopped short of explicitly calling for further rate hikes and said price pressures should ease next year as the effects of recent economic shocks fade.

Elsewhere, the Monetary Authority of Singapore…

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