Gold and Bitcoin Crushed by US Inflation Surprise
Gold and Bitcoin prices fell on Thursday due to hotter-than-expected US inflation. The August producer price index rose 0.4% month-over-month and 5.4% year-over-year, beating a consensus of 5.3%. This led to higher Treasury yields and increased expectations for a Federal Reserve rate hike in September.
The 10-year Treasury yield climbed above 4.9%, while the probability of a September Fed hike rose to around 70%. As a result, gold prices dropped over 1% to $4,358 an ounce, and Bitcoin weakened as investors moved away from non-yielding assets.
Despite record institutional demand for bullion, with global gold ETFs attracting $18 billion in August, the rate shock was too great. The World Gold Council reported a 121-tonne increase in holdings to a record 4,189 tonnes, and a 16% jump in assets under management to $615 billion.
The decline in Bitcoin and gold prices is notable because both assets do not produce yield. As Treasury rates climb towards 5%, government bonds become more attractive relative to these assets. The next major test for the market comes with Friday's US CPI report, which may further impact inflation concerns and interest rates.