Gold fell by about 0.9% on Thursday, trading at $4,360 an ounce, as fresh US producer price data and a surge in oil prices above $100 a barrel reinforced expectations that the Federal Reserve will raise interest rates next week. The move higher in Treasury yields and the US dollar weighed on the precious metal.
Producer prices and oil fuel rate-hike bets
August’s US Producer Price Index (PPI) rose 0.4% month-on-month, matching forecasts, while the annual rate came in at 5.4%, slightly above the 5.3% expected. Core PPI, which excludes food and energy, rose 0.2% month-on-month – below the 0.3% estimate – and stood at 4.6% year-on-year, as predicted. Meanwhile, initial jobless claims for the week ending September 5 totalled 205,000, in line with forecasts but lower than the previous week’s figure.
At the same time, West Texas Intermediate (WTI) crude oil cleared the $100 per barrel threshold for the first time since mid-May, contributing to a broader risk-off mood. The combination of producer price pressures and higher energy costs pushed US Treasury yields higher; the 10-year note rose nearly seven basis points to 4.93%. The US Dollar Index (DXY) climbed 0.2% to 98.99, making gold, which is priced in dollars, more expensive for holders of other currencies.
According to the CME FedWatch Tool, money markets now assign a near-70% probability to a 25-basis-point rate increase at the Federal Reserve’s policy meeting next week. Higher interest rates raise the opportunity cost of holding non-yielding assets like gold.
Technical levels to watch
Gold price has found support above its 100-day simple moving average (SMA) at $4,339, which has so far prevented a test of the September 2 low of $4,282. The Relative Strength Index (RSI) suggests further consolidation may lie ahead, with the 200-day SMA at $4,538 acting as resistance.
If gold slips below the 100-day SMA and then below $4,300, the next support levels are $4,282, the 50-day SMA at $4,266, and then $4,200. On the upside, a move above $4,400 could open the way to the psychological $4,450 level, ahead of $4,500 and the 200-day SMA.
Focus on Friday’s CPI
Traders now turn to Friday’s release of the US Consumer Price Index (CPI) for August. CPI is expected to rise 0.4% month-on-month, up from 0.1% in July, with the annual rate unchanged at 3.4%. Core CPI is forecast to hold at 0.2% month-on-month and to edge lower to 2.4% year-on-year from 2.5%. The University of Michigan’s preliminary consumer sentiment reading for September is also due.
A higher-than-expected CPI print could further strengthen the case for a hawkish Fed and put additional pressure on gold. Conversely, a softer reading might ease some of the recent selling pressure.
Key takeaways
- Gold fell 0.9% after US PPI data and oil above $100 boosted bond yields and the dollar.
- Money markets see a near-70% chance of a 25-bp Fed rate hike next week.
- Technical support lies at the 100-day SMA ($4,339) and $4,300; resistance at $4,400 and the 200-day SMA ($4,538).
- Focus shifts to the US CPI release on Friday, which could set the near-term direction for gold.
Common questions
Why does gold fall when bond yields rise?
Gold pays no interest, so when bond yields climb, the opportunity cost of holding gold increases. Investors may sell gold to buy higher-yielding assets, pushing its price lower.
What is the significance of the US PPI for gold?
The Producer Price Index measures inflation at the wholesale level. A hot PPI reading can signal that consumer prices may follow, prompting central banks to tighten monetary policy. Tighter policy tends to strengthen the dollar and raise bond yields, both of which are negative for gold.
Gold’s longer-term appeal remains tied to its role as a store of value and hedge against currency depreciation. Central banks, particularly in emerging economies, have been increasing their reserves, adding 1,136 tonnes in 2022. For now, however, the immediate focus is on the Fed’s next move. You can track the live gold price to see how markets react to incoming data.