Today, gold has recovered some losses. Spot gold rose 0.8% to $3,915/oz after plunging yesterday to a 13-month low. Silver gained 1.1% to $50.56, while platinum and palladium also advanced.

However, gold lost more than 6% over the past three sessions. The sell-off was triggered by US consumer-price data that beat forecasts and by Federal Reserve officials' comments backing a tougher tightening path. The cause is rates: yields on certain US Treasuries rose more than 12 basis points on Thursday, with short-dated paper — most sensitive to Fed policy — rising the most. Traders are pricing in a 25-bp hike in December, with a small chance of 50 bp, and some in the market even anticipate further hikes after December. John Williams and Austan Goolsbee said on Thursday that inflation remains high, and Mary Daly stated, "My view is that further tightening will be required." Gold pays no yield, so every additional Fed move raises the opportunity cost of holding it.

Today's bounce is explained by buying on dips. A rally after the break below $4,000 can be attributed only to reserve managers stepping in. Previously, the $4,000 area was tested in July and late October, and the price was then supported by central-bank demand, large institutional buyers, and Chinese household purchases. The rebound is not driven by falling yields, so in my view it is more of a technical breather than a trend reversal.

Oil plays a role in this chain. Since the US–Iran war began in late February, gold and oil have largely moved in opposite directions. Disruptions to Middle East exports pushed energy prices up, prompting central banks to tighten policy, which in turn weighed on gold. Brent rose 3.3% on Thursday but has fallen over the past two weeks as hopes grew for a quick end to the nine-month conflict.

This afternoon the US Producer Price Index (PPI) will be released, and it is the first major test for the metal. September PPI jumped 1.3% m/m versus a 0.5% forecast, and the market now expects a much weaker 0.4% rise. Some analysts see a risk of gold falling to $3,870 if PPI surprises to the upside.

All this shows gold remains hostage to Fed policy. I believe the metal will trade below $4,000 until the Fed meeting on December 9; a strong PPI could test $3,870 and keep weekly losses intact. A return above $4,000 will require softer data and a dovish shift in Fed rhetoric.

On the technical side, buyers need to take the nearest resistance at $3,906. That would set up a target of $3,954, above which a breakout will be difficult. The most distant upside target is $4,001. On a decline, bears will try to seize control of $3,849; if they succeed, a range breakout would deal a serious blow to bulls and push gold toward a $3,802 low with the prospect of reaching $3,756.