Gold prices fall more than 1% as traders bet the probability of a Fed rate hike next week rises to 70%

On Thursday, gold prices fell by more than 1% as strong U.S. inflation data and rising oil prices increased market bets on a Federal Reserve rate hike next week. Kyle Rodda, Senior Financial Market Analyst at Capital.com, stated that the Producer Price Index data more or less tells us that underlying inflation in the U.S. economy is picking up, partly due to rising energy costs. U.S. producer prices in August rose roughly in line with expectations, but energy product prices rebounded. According to the Chicago Mercantile Exchange FedWatch tool, traders now see a 70% probability of a rate hike next week, up from 62% before the data was released. However, most economists surveyed by Reuters expect the Federal Reserve to keep interest rates unchanged at its September 15-16 meeting and for the rest of the year. The strengthening U.S. dollar has made dollar-denominated gold more expensive for holders of other currencies, while rising benchmark 10-year U.S. Treasury yields have further pressured gold prices. Rodda added that higher bond yields reflect more persistent and elevated inflation pressures brought about by higher oil prices, which is also leading to lower gold prices. Rising bond yields typically increase the opportunity cost of holding non-yielding assets, thereby weighing on gold.