Gold prices slid to session lows on Wednesday as hotter-than-expected US inflation data strengthened concerns that interest rates could rise in December, putting bullion under pressure.

Gold dropped below $4100 after the news and was trading around $4098 an ounce with a decline of over 1.5% at the time of writing.

The September consumer price index (CPI) rose 3.7% from a year earlier, exceeding analysts’ average forecast of 3.6%. Core CPI, which excludes food and energy, increased 0.3% for the second consecutive month, pushing its annual rate to 2.6% from 2.4% in August. Economists had expected an annual increase of 2.5%, according to a Bloomberg survey.

The latest inflation readings could complicate the Federal Reserve’s efforts to bring inflation under control, as policymakers assess whether another interest-rate increase may be necessary this year. Higher rates and rising returns on interest-bearing assets tend to weigh on gold, which does not pay interest.

Inflation data puts gold under pressure

The latest CPI figures could prompt the Fed to maintain a restrictive policy stance if inflation proves persistent. Odds of a rate hike in the October 28 meeting surged to 43.7%, up from 22.1% yesterday, soon after inflation data was released. Chances of a December rate hike are already high.

For gold, the concern is that stronger inflation may not necessarily translate into easier monetary policy. Instead, if the Fed keeps rates higher for longer, Treasury yields and the dollar could remain firm, limiting the appeal of bullion.

Investors will now turn to a fresh round of economic releases for clues about the direction of inflation and economic activity. Thursday’s calendar includes the producer price index (PPI), retail sales, weekly jobless claims and the Philadelphia Fed survey. Friday’s focus will shift to import and export prices, alongside Fed Chair Kevin Warsh’s appearance at an International Monetary Fund event.

A softer PPI reading or weaker consumer spending could ease pressure on gold by reducing concerns about inflation and interest rates. Conversely, stronger producer prices or resilient retail sales could support the case for tighter monetary policy, keeping yields and the dollar elevated.

Oil adds another layer of uncertainty

Developments in the Middle East are also influencing the outlook for precious metals, with tensions around the Strait of Hormuz and the US-Iran conflict presenting another risk to energy supplies.

Oil prices climbed following an attack on a Saudi Aramco building in Dhahran. A container ship sank south of the Strait of Hormuz after hitting a naval mine, while a tanker and another container ship were struck inside the waterway. Iranian officials said they were deploying new tactics to target vessels, while the Iran-aligned Houthis continued missile and drone attacks against Saudi Arabia.

Brent crude traded near $106 a barrel, while West Texas Intermediate was around $95.5. Tight diesel supplies have added to concerns that energy costs could remain elevated.

Geopolitical tensions can generally support gold by increasing demand for safe-haven assets. However, Wednesday’s price action reflected a different dynamic, as higher oil prices raised the prospect of persistent inflation and further interest-rate pressure.

What could move gold next?

The near-term outlook for bullion will depend on whether incoming economic data show signs of easing inflation or slowing growth. Evidence of weaker economic activity or moderating price pressures could revive buying interest in gold, particularly if it reduces expectations for further rate increases.

On the other hand, firm inflation readings and resilient economic data could keep bullion under pressure as investors factor in higher rates for longer.

Silver also faced additional pressure from similar factors and was trading around $57 an ounce with a decline of over 2%.

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