Spot gold rebounded slightly, trading near the $3,900 level in early European trading on Friday. The dollar paused its three-day rally, reaching its highest level since April 2025, providing some support for gold. However, increased expectations of a Fed rate hike and continued uncertainty in the Middle East supported the dollar, which in turn limited the precious metal's intraday gains.

Interest rate hike pricing: A 25 basis point hike in December is fully priced in, with a 50 basis point hike probability of approximately 13%.

Against the backdrop of stronger-than-expected US October consumer inflation data, hawkish comments from several Federal Reserve officials prompted traders to price in a tighter monetary policy stance. In fact, the CME FedWatch tool showed that a 25-basis-point rate hike in December was fully priced in, with traders also pricing in a roughly 13% probability of a 50-basis-point hike. This, coupled with overnight oil price increases, led to further selling of US Treasuries, pushing the benchmark 10-year Treasury yield above 5%, which benefited the dollar bulls. Rate hike expectations have shifted from "whether to raise rates" to "how much to raise," and while the 13% probability of a 50-basis-point hike is not high, its very existence is enough to support the dollar and suppress gold—further increases in yields directly raise the opportunity cost of holding non-yielding gold.

Geopolitical Risks: Trump issues new warning to Iran, saying the US doesn't need a deal.

Meanwhile, US President Trump issued a new warning to Iran on Thursday, stating that anyone responsible for attacks on US officials "will cease to exist." Trump added that he would not hesitate to take further military action if the situation required it. Trump wrote on social media that the US does not need a deal with Iran; those days are long gone. Furthermore, the attacks on Saudi energy infrastructure and merchant ships in the Strait of Hormuz have kept geopolitical risk premiums in place, validating the positive outlook for the US dollar and should suppress gold prices. Geopolitical risks should normally benefit gold's safe-haven properties, but in the current environment, they have supported the US dollar more—because the dollar possesses both safe-haven and interest rate differential attributes, while gold only offers safe-haven appeal and lacks interest rate differentials; this is precisely why gold has failed to benefit like traditional safe-haven assets in this round of geopolitical conflicts.

Market Focus: PPI and FOMC Speech; Gold Prices Still Expected to Record Weekly Declines

Looking ahead, the US Producer Price Index (PPI) will be the focus of Friday's economic calendar. In addition, speeches by influential FOMC members will affect expectations regarding the Fed's policy path. Furthermore, subsequent geopolitical developments could continue to cause volatility in global financial markets and drive demand for the US dollar, providing some momentum for gold. Nevertheless, spot gold is still expected to record a weekly decline. Meanwhile, the fundamental backdrop appears firmly biased towards a bullish dollar, suggesting that any subsequent rise in gold prices is more likely to be sold off and remain limited. The current gold rally lacks fundamental support—interest rate hike expectations, rising yields, and the safe-haven appeal of the dollar all contribute to upward pressure, while the technical indicators also fail to provide clear reversal signals; the expected weekly decline is a direct reflection of this pressure.

in conclusion

Spot gold is currently trading around $3,900. The US dollar paused its three-day rally, reaching its highest level since April 2025, providing some support for gold; however, increased expectations of a Fed rate hike and continued uncertainty in the Middle East continue to support the dollar, limiting gold's upside. A 25 basis point rate hike in December has been fully priced in, with a 50 basis point probability of about 13%, and the 10-year yield has further risen above 5%, increasing the opportunity cost of holding gold. Geopolitically, Trump issued a new warning to Iran, stating that the US does not need a deal, and attacks on Saudi energy facilities and merchant ships in the Strait of Hormuz keep risk premiums in place—but geopolitical risks are supporting the dollar, which has both safe-haven and interest rate differential attributes, more than gold. The focus going forward is on PPI and the FOMC speech; gold prices are still expected to record a weekly decline, with the fundamental background firmly biased towards a bullish dollar, indicating that any gains are more likely to be sold off and remain limited. (Spot gold daily chart, source: FX678) At 15:36 Beijing time, spot gold was trading at $3893.84 per ounce.