Gold Falls Below $4,100 to a Two-Month Low, Dragging the PRISM Precious Metals Index Down Nearly 5%

Precious metals stocks sold off hard Thursday as surging oil prices revived inflation fears and raised bets on another Federal Reserve rate hike. Spot gold fell 1.9% to about $4,060 an ounce, its lowest level since August 4, and silver dropped nearly 4%. As a result, the PRISM Precious Metals Index fell 4.9% by late morning, with 29 of its 31 members trading lower.

Key Points

• Spot gold dropped 1.9% to $4,060.37 an ounce. Silver fell 3.9% to about $55.72, and platinum slid 2.9% to a nearly three-month low.
• Brent crude hit its highest level since May after new Houthi attacks in Saudi Arabia raised fears of supply disruptions.
• Traders now see an 86% chance of a Fed rate hike in December, which makes non-yielding gold less attractive.
• New Pacific Metals, Galiano Gold and IAMGOLD led the index lower, each falling more than 7%.

Oil and Inflation Turn Against Gold

The selloff started in the energy market. Brent crude climbed to its highest level since May after further Houthi attacks in Saudi Arabia raised fears of a wider conflict. Higher oil prices add to inflation that already ran hot last week, when U.S. consumer and producer price data both came in above expectations, mostly because of energy costs.

That has pushed rate expectations higher. The Fed is expected to hold rates steady at its October 27–28 meeting. However, traders are now pricing in an 86% chance of a hike in December, according to CME’s FedWatch Tool. Goldman Sachs expects one more quarter-point increase, which would take the peak rate range to 4.00%–4.25%. Higher rates hurt gold because the metal pays no interest.

“There’s a lot of uncertainty around the energy market,” said ANZ’s Soni Kumari, who warned that gold could fall further. Meanwhile, Capital Economics’ Hamad Hussain expects the October 29 PCE inflation report to show “prices rose at an uncomfortably high pace for the Fed.”

Miners Fall Harder Than the Metals

As usual, mining stocks amplified the metals’ decline. New Pacific Metals (NYSE American: NEWP) led the index lower with a 9.2% drop to $5.85. Galiano Gold fell 8.5%, and IAMGOLD (NYSE: IAG) slid 7.7% to $16.45.

Silver producers also took heavy losses as silver fell more than gold. Coeur Mining (NYSE: CDE) dropped 5.9% to $14.24, Avino Silver & Gold fell 7.0%, and Endeavour Silver lost 6.0%. Hecla Mining (NYSE: HL) declined 5.4% to $14.33.

The selling also hit developers and critical-minerals names. Platinum Group Metals fell 7.3% and Critical Metals 7.0%, while McEwen (NYSE: MUX) slipped 5.1% to $15.03.

What to Watch Next for the PRISM Precious Metals Index

Only two index members rose Thursday: Texas Mineral Resources (OTCQB: TMRC) and Rare Element Resources (OTCQB: REEMF), each up about 1%. Both are critical-minerals developers rather than gold or silver producers, which helped shield them from the sell-off in precious metals. The next catalysts are the Fed’s October 27–28 meeting and the October 29 PCE report. If inflation stays hot and oil keeps climbing, pressure on gold and the miners could continue. Even after Thursday’s drop, however, gold remains above $4,000 an ounce.