Gold Under Pressure Falls to August Low as Oil Prices and PPI Boost Rate Hike Expectations
nashnova research
Spot gold sits at $4,318.48/oz after a 1.8% single-day drop to its lowest since early August. Surging oil and a hot PPI print have pushed the market-implied probability of a 25 bp Fed hike in September to roughly 70%, squeezing the yield-less metal.
Why did gold drop so sharply?
Spot gold traded at $4,318.48 per ounce, down 1.8% in the prior session — its lowest since early August.
This means → the market's rate-hike bets are surging, raising the "opportunity cost" of holding gold. The higher rates go, the less attractive a zero-yield asset becomes.
Silver plunged 5.5% on the same day — its steepest fall since June — then slipped another 0.1% to $63.58/oz. Platinum and palladium held steady.
What did the inflation data show?
U.S. August PPI — the producer price index, which tracks factory-gate prices — rose 0.4% month-on-month, the largest single-month gain since May.
Rising energy prices were the main driver, with Brent crude pushing toward $108 per barrel.
In plain terms = upstream pricing pressure is still accelerating, making it hard for the Fed to justify a pause.
Why do oil prices keep climbing?
Multiple fronts in the Middle East are escalating simultaneously: U.S. strikes on Iranian tankers, Iranian missiles fired at a Jordanian air base, and Houthi attacks on Saudi infrastructure.
This means → supply-side risk premiums are stacking, driven not by a single event but by tension across several theaters at once.
Higher energy costs feed directly into PPI, which feeds into rate-hike expectations — creating a chain: oil ↑ → inflation ↑ → rate bets ↑ → gold ↓.
What is the market pricing for the Fed?
Interest-rate swaps now price a 25 bp hike at the September 14–15 FOMC meeting at roughly 70% probability.
Bond yields rose in tandem, partly because a Treasury buyback operation attracted only about $5.2 billion in offers — below the $6 billion target ceiling.
This reflects growing doubt about Treasury Secretary Scott Bessent's efforts to stabilize long-end yields. Higher yields mean more pressure on gold.
What comes next?
The market is waiting for the Bureau of Labor Statistics to release August CPI on Friday — the last major data point before the Fed's September meeting.
If CPI confirms sticky inflation → rate-hike bets keep rising and gold faces further pressure.
If CPI comes in well below expectations → traders may reassess the current hawkish rate-path pricing, giving gold room to breathe.
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