Dollar Strength Sends Gold Prices Plummeting 2% Amid Rate Hike Bets

Gold prices declined by about 2% on Thursday, weighed down by a stronger US dollar following a mixed August producer inflation report. The data boosted Federal Reserve rate hike expectations, which tends to weaken gold and strengthen the dollar.

The Bureau of Labor Statistics reported that headline PPI ticked up 0.4% month-over-month (M/M) and 5.4% year-over-year (Y/Y) in August, exceeding consensus estimates. The core PPI index also rose 0.2% M/M and 4.6% Y/Y.

The inflation update comes ahead of the closely watched consumer price index (CPI) data and just days after a strong August nonfarm payrolls report. Taken together, these indicators suggest a resilient US labor market and an economy facing price pressures.

As a result, Fed interest rate odds rose to 71%, up from around 64% before the PPI data. Higher rates typically weaken gold and strengthen the dollar, making it more expensive for foreign buyers.