Gold recovers from steep drop, but hawkish central bank signals weigh

Gold prices rose on Wednesday but stayed near the $4,000 level. The metal had fallen sharply in the previous session after a hot US inflation reading and hawkish comments from policymakers. Those comments shifted market expectations toward further and larger rate hikes.

Spot gold rose 0.5% to $4,051.31 an ounce by 0916 GMT. It had dropped as much as 3% to $4,013.29 on Tuesday. US gold futures for December delivery gained 0.7% to $4,059 an ounce.

"Gold is seeing some slight relief after its post-CPI declines," said Han Tan, chief market analyst at Bybit. "However, it's a tough ask for gold bulls to keep pushing prices higher, given the prospects of more Fed rate hikes in the pipeline."

Data released on Tuesday showed US consumer prices rose more than expected in October. The CPI rose 0.4%. Economists polled by Reuters had forecast a 0.3% rise.

Traders raised the odds of a December Federal Reserve rate hike to 100% from 84% before the data, according to CME's FedWatch tool. Expectations of a larger, half-percentage-point hike also rose.

Ahead of the data, Fed Governor Christopher Waller said a core inflation reading of 0.3% in October would prompt him to consider a half-point hike at the December meeting. Other policymakers also kept a hawkish tone. Fed Bank of Philadelphia President Anna Paulson signalled further US rate hikes. Fed Vice Chair for Supervision Michelle Bowman reaffirmed the central bank's focus on curbing price pressures.

Although gold is usually seen as a hedge against inflation, higher interest rates reduce its appeal because gold bullion pays no interest.

Among other metals, spot silver rose 2.7% to $52.87 an ounce. Palladium gained 4.1% to $1,066.66 an ounce.