Key takeaways
- Gold drops below $3,900 despite rising geopolitical uncertainty
- Hot US inflation strengthens December Fed rate hike expectations
- Dollar strength and Treasury yields outweigh safe-haven buying
Gold prices plunged below $3,900 per ounce on Thursday, November 12, extending a three-session selloff as rising Federal Reserve rate hike expectations and a stronger US dollar overwhelmed demand for traditional safe-haven assets.
Spot gold fell approximately 2.9% to $3,871.31 per ounce, its lowest level since October 2025, while December US gold futures dropped 3.2% to around $3,872. The decline reversed much of the recovery that had previously pushed gold above $4,040.
Hot CPI Data Pushes Fed Rate Hike Expectations Higher
The immediate catalyst came from the US Bureau of Labor Statistics' October inflation report, which showed consumer prices increasing 0.4% month over month, above economists' expectations of 0.3%.
Core inflation, excluding food and energy, rose 0.3%, also exceeding forecasts. The readings strengthened expectations that the Federal Reserve will raise interest rates at its December 8-9 meeting.
Markets assigned approximately a 91% probability to a 25-basis-point increase, while speculation about a larger move also intensified.
Higher interest rates generally weaken gold's appeal because the metal generates no interest. Rising Treasury yields make government bonds comparatively attractive, while a stronger dollar increases the cost of bullion for international buyers.
The dollar climbed toward a 19-month high, adding pressure to a market already struggling to sustain its recent recovery.
Why Is Gold Falling Despite Geopolitical Tensions?
Gold's weakness reflects an unusual market contradiction: uncertainty surrounding the Middle East conflict is increasing, but investors are selling an asset traditionally used for protection against geopolitical risk.
Renewed concerns about Iran and potential oil supply disruptions have pushed energy prices higher. Earlier oil market volatility demonstrated how quickly regional tensions can affect crude prices and inflation expectations.
More expensive oil creates a difficult environment for bullion. It can intensify inflation, encourage additional monetary tightening and raise the opportunity cost of holding non-yielding assets.
This helps explain why gold previously crashed below $3,900 during October's equity selloff, before briefly recovering as financial conditions improved.
However, structural gold demand has not disappeared. The World Gold Council reported that central banks purchased 321 tonnes during the third quarter, while physically backed gold ETFs attracted another 211 tonnes.
Gold Price Forecast: Can XAU/USD Recover Above $4,000?
Gold's latest decline puts the $3,900 region back in focus, following its earlier failure as a reliable support level. A sustained recovery above $3,900 would be the first indication of stabilization, with $4,000 representing a more significant psychological resistance level.
On the downside, continued selling could expose the $3,800 area, although the next direction will depend heavily on economic data and interest-rate expectations.
The immediate catalyst is Friday's US Producer Price Index report. Stronger inflation could reinforce Fed tightening expectations, while softer figures may help weaken the dollar and allow bullion to stabilize.
The latest decline also challenges the earlier gold price recovery, showing that persistent inflation and higher borrowing costs can temporarily overpower even strong demand for financial protection.
