Gold holds near US$4,320 as oil surge fuels Fed hike bets

Gold price remained stable at US$4,318.48 per ounce this morning. The metal had fallen 1.8 percent in the previous session to its lowest level since early August. This decline coincided with a rise in US producer prices and higher crude oil costs.

The US producer price index increased by 0.4 percent in August. This was the largest monthly gain since May. The increase reflects rising energy costs driven by escalating conflict in the Middle East.

Oil prices drive inflation concerns

Brent crude oil traded close to US$108 per barrel. Hostilities between the United States and Iran have intensified in recent weeks. The US struck Iranian oil tankers while Iran fired missiles at a Jordanian airbase.

Houthi forces in Yemen also attacked infrastructure in Saudi Arabia. These actions have kept energy markets volatile. Higher oil prices add to the inflation pressure facing policymakers.

Bond yields rise on Treasury doubts

US bond yields surged after weak results from a Treasury buyback operation. Investors questioned the effectiveness of the intervention aimed at stabilizing markets. Long-term yields have jumped significantly in recent weeks.

Gold does not pay interest. It typically underperforms when bond yields are high. The rising cost of holding cash alternatives makes gold less attractive to some investors.

Market focus shifts to Friday data

Traders are watching the US consumer price index due on Friday. This data will provide further clues on Federal Reserve policy. Swaps markets price in a 70 percent chance of a rate hike at the September 15-16 meeting.

Silver fell 0.1 percent to US$63.58 per ounce. It had dropped 5.5 percent on Thursday, its largest loss since June. Platinum and palladium remained steady. The Bloomberg Dollar Spot Index was flat after a 0.3 percent rise earlier, according to Gold (Google News) reporting.