NEW YORK: Gold prices dropped over 1percent on Thursday after robust US inflation data and rising oil prices increased bets for a Federal Reserve rate hike next week.
Spot gold slipped 1.2percent to USD4,349.32 per ounce by 9:24 a.m. EDT (1324 GMT), while US gold futures fell 1.6percent to USD4,391.30. The producer price index data “sort of tells us that there has been a bit of a pickup in underlying inflation in the US economy, and a part of that is due to rising energy costs,” said Kyle Rodda, senior financial market analyst at Capital.com.
US producer prices increased in line with expectations in August amid a rebound in the cost of energy products. Traders are now pricing a 70percent chance of a rate hike next week, up from 62percent before the data, according to the CME FedWatch Tool.
A majority of economists polled by Reuters expect the Fed to hold interest rates steady at its September 15-16 meeting and for the rest of this year.
The US dollar climbed, making greenback-priced bullion more expensive in other currencies, while higher benchmark 10-year US Treasury yields further pressured gold. Bonds has to reflect more persistent and higher inflationary pressures from higher oil prices, which is seeing gold prices drop, Rodda added.
Rising bond yields typically pressure gold by increasing the opportunity cost of holding the non-yielding asset. Oil prices jumped 4percent on Thursday with benchmark Brent crude hitting USD105 a barrel, after the biggest spike in attacks on shipping since the start of the US-Iran war spurred supply disruption concerns. Meanwhile, the European Central Bank on Thursday raised interest rates the second time this year, seeking to quell an energy-driven rise in inflation triggered by the war.
Among other metals, spot silver slid 4.2percent to USD64.47 per ounce, platinum dropped 4.9percent to USD1,802.48 and palladium fell 4.3percent to USD1,295.23.