Gold was relatively stable early on Friday after a decline yesterday following strong U.S. inflation data and a rebound in the US dollar.
August’s PPI rise of 0.4% month-on-month, with the annual value accelerating to 5.4%, lifted September Federal Reserve interest rate hike odds toward 70%. Expectations now point to another hike in December, which could weigh on the metal if it materialises.
As a result, US Treasury yields jumped higher yesterday, raising the opportunity cost of holding the yellow metal. Yields stabilised to some extent today but remained at elevated levels. European yields followed a similar path after the ECB raised its interest rate. Japanese yields remained elevated, further capping gold’s potential.
Higher oil prices amid renewed tensions in the Middle East kept inflation concerns in place, adding to the downside risk for gold. The metal could continue trading under strain as traders await the U.S. Consumer Price Index data for further clues on monetary policy.
Looking ahead, today’s CPI is the main event before the September 15-16 Fed meeting. Another strong reading could lift yields further and pull gold down. Weaker consumer inflation may soften rate hike bets and help gold recover. Investors will also keep a close eye on oil prices and developments in the Middle East as they remain near-term risks.
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