Gold prices fell more than 1% on Thursday as rising oil prices and US inflation data strengthened expectations of a Federal Reserve interest rate increase next week.
Spot gold declined 1.2% to $4,349.32 per ounce around 8 pm IST, while US gold futures dropped 1.6% to $4,391.30, Reuters reported.
US producer prices rose in line with expectations in August, reflecting a rebound in energy costs. Traders subsequently priced in a 70% probability of a Fed rate hike next week, up from 62% before the data, according to the CME FedWatch Tool, the report added.
That market view contrasts with a Reuters poll, in which a majority of economists expected the central bank to keep rates unchanged at its September 15-16 meeting and for the remainder of the year.
A stronger dollar added to pressure on bullion by making it more expensive for buyers using other currencies. Higher benchmark 10-year US Treasury yields also weighed on prices.
Rising yields increase the opportunity cost of holding gold, which does not pay interest. The combination of a firmer dollar and higher returns on bonds reduced the appeal of the precious metal.
Oil prices jumped 4% on Thursday, with Brent crude reaching $105 a barrel. The increase followed the biggest surge in attacks on shipping since the start of the US-Iran war, raising concerns about disruptions to energy supplies.
The European Central Bank also raised interest rates for the second time this year on Thursday as it sought to contain inflation driven by war-related energy costs.
Investors will now watch this week’s Personal Consumption Expenditures (PCE) Price Index data for further signals on inflation ahead of the Fed meeting. With West Asia tensions keeping oil prices elevated, the release could influence expectations for borrowing costs and the near-term direction of gold prices.