19 hrs ago
Gold Drops as Oil Surge Raises Fed Hike Bets
Gold prices fell because investors expected interest rates to rise.
Higher interest rates can make gold less attractive because gold does not pay interest.
Oil prices climbed sharply after attacks on shipping increased concerns about energy supplies.
Higher energy costs also contributed to stronger inflation worries.
US producer prices rose in August as expected.
Traders raised the estimated chance of a Federal Reserve rate hike next week to 70%.
However, a Reuters poll found that most economists expected rates to stay unchanged.
Investors are watching new inflation data for clues about what happens to gold next.
Spot gold fell 1.2% to $4,349.32 per ounce, while US gold futures dropped 1.6% to $4,391.30.
US producer prices rose as expected in August, reflecting a rebound in energy costs.
Markets priced in a 70% chance of a Federal Reserve rate hike next week, up from 62% before the data.
A stronger dollar and higher 10-year US Treasury yields further pressured gold prices.
Oil prices jumped 4%, with Brent crude reaching $105 a barrel amid concerns about energy-supply disruptions.
- Who
- Gold investors, the Federal Reserve, US economists, and oil-market participants were involved in the market moves.
- What
- Gold prices fell more than 1% as higher oil prices, inflation data, a stronger dollar, and rising bond yields increased expectations of higher US interest rates.
- Where
- The changes occurred in global financial markets, with US economic data and West Asia tensions influencing prices.
- When
- Thursday, ahead of the Federal Reserve meeting scheduled for September 15-16.
- Why
- Rising energy costs and US producer prices strengthened inflation concerns, while a firmer dollar and higher Treasury yields reduced gold’s appeal.
Rate Hike Expectations
Rate Hold Expectations
Federal Reserve decision
Rate Hike Expectations
Market pricing indicated a 70% probability of a Federal Reserve rate hike next week, up from 62% before the US producer-price data.
Rate Hold Expectations
A majority of economists in a Reuters poll expected the Federal Reserve to leave rates unchanged at its September 15-16 meeting and for the remainder of the year.
Interpretation of inflation pressure
Rate Hike Expectations
Rising energy costs and August producer prices were seen as strengthening concerns that interest rates may need to rise.
Rate Hold Expectations
Economists’ forecasts indicated that the available data did not necessarily warrant another rate increase, with most expecting rates to remain unchanged.
Key facts
- Spot gold
- Down 1.2% to $4,349.32 per ounce around 8 pm IST.
- US gold futures
- Down 1.6% to $4,391.30.
- Fed hike probability
- Markets priced in a 70% chance of a rate hike next week, up from 62%.
- Oil prices
- Rose 4%, with Brent crude reaching $105 a barrel.
- US producer prices
- Rose in line with expectations in August.
- Economists’ forecast
- A majority of economists polled by Reuters expected the Federal Reserve to keep rates unchanged in September and for the rest of the year.
- Next market focus
- The Personal Consumption Expenditures Price Index data, which could affect rate expectations and gold prices.
Sources
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