Gold under pressure as the dollar strengthens and U.S. 10-year Treasury yields surge to a 3-month high as investors bracing for another large interest rate hike next week by the Federal Reserve to stem soaring inflation.
An unexpectedly large inflation figure for August has sent financial markets roiling since Tuesday and boosted speculation that Fed policymakers may even consider a 100-basis-point increase in rates at their Sept. 21 meeting. Higher interest rates are typically bearish for gold, though the underlying inflation is traditionally bullish.
Front-month gold futures tumbled 1.9% Thursday to settle at $1,677.30 an ounce on Comex. Gold hit the lowest level since April 2020 in intraday trading. The December contract has declined 3% this week. Bullion dropped 3.1% in August after declining 1.4% in July. The metal retreated 3.5% in 2021. Currently, the December contract is down $9.3 (-0.55%)to $1668.00 and the DG spot price is $1661.50.
Investors are betting there’s a 24% chance of a 100-basis-point rate increase on Sept. 21, though none were projecting a move that large before the consumer price index report came out Tuesday, according to the CME FedWatch Tool. The remaining 76% of investors are predicting a 75-basis-point increase. A month ago, 59% had anticipated only a 50-basis-point increase amid speculation that the Fed’s previous rate hikes would have started to turn the inflationary tide.
The Fed raised rates by 75 basis points each in June and July and has increased rates by 225 basis points this year to combat surging inflation.
The U.S. consumer price index rose 0.1% in August from July, according to Labor Department data released Tuesday, after showing no change the prior month. The report crushed hopes that the Fed’s previous rate hikes had halted further increases in inflation, which was already at 40-year highs. The CPI climbed 8.3% from a year earlier, a slight slowdown, but the so-called core CPI, which strips out volatile energy and food costs, showed the first acceleration in six months.
Equities also extended their decline as the dollar and Treasury yields held their strength in anticipation of an aggressive Fed move that could prove detrimental to economic growth. Strength in the dollar and Treasury yields is typically bearish for gold.
Front-month silver futures dropped 1.5% Thursday to settle at $19.27 an ounce on Comex, though the December contract is up 2.7% in the first four days of the week after a large rally Monday. Silver tumbled 12% last month after slipping 0.8% in July. It retreated 12% in 2021. Silver prices are tied to industrial demand. The December contract is currently down $0.254 (-1.32%) to $19.015 and the DG spot price is $19.14.
Spot palladium decreased 1% Thursday to $2,168.00 an ounce. It’s down 1.8% so far this week. Palladium retreated 3.3% in August after rising 9.9% in July. It dropped 22% in 2021. The current DG spot price is down $43.10 an ounce to $2128.00
Spot platinum rose 40 cents Thursday to $917.80 an ounce and is up 2.9% this week. Platinum tumbled 6.1% in August after decreasing 0.3% in July. It fell 9.4% last year. The DG spot price is down $17.40 an ounce to $900.30.
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