Gold Drops to $4,320 on Strong US PPI Data
Gold prices fell below $4,350 to near $4,320 in early Asian trading. Rising US producer inflation and oil costs have increased bets on a Federal Reserve rate hike.
Gold slid to approximately $4,320 per ounce during the early Asian session on Friday. The decline followed the release of US Producer Price Index data that exceeded market forecasts. Traders now price a 70% probability of a US interest rate increase next week. This figure represents a significant jump from the 62% probability calculated before the data release.
The Bureau of Labor Statistics reported that August PPI rose 5.4% year-over-year. This figure beat the consensus estimate of 5.3% and the previous revised reading of 4.8%. Core PPI matched expectations with a 4.6% annual increase. Higher rates typically reduce demand for gold because the metal does not generate yield.
Inflation Data Drives Market Repricing
Analysts from capital.com noted that the PPI data signals a pickup in underlying US inflation. They attributed part of this increase to rising energy costs. TD Securities described the market as having elevated sensitivity to incoming economic data. The bank warned that an upside surprise in inflation could weigh on the precious metal.
Investors await the US Consumer Price Index report later this week. This data point will provide further clarity on the trajectory of inflation. Previous strong jobs data had a temporary negative impact on gold prices. Less hawkish Federal Reserve commentary subsequently cooled the bearish narrative.
Geopolitical Tensions Add To Risk
Geopolitical risks continue to heighten concerns over global supply chains. Iran stated it would escalate its response to any further attacks on its vessels. The country claimed it attacked ten ships near the Strait of Hormuz on Wednesday. These events support the case for tighter monetary policy to combat inflation.
Technical Indicators Show Bearish Bias
Gold trades below the 100-day simple moving average at roughly $4,340. The Relative Strength Index sits at 45, indicating fading upside momentum. Support is located near the Bollinger lower band at $4,252. A daily close below this level could trigger a deeper corrective slide toward earlier basing levels.
