Gold Dives on Rate Hike Bets as Traders Eye September

Gold prices fell by more than 3% on Friday due to renewed bets of an interest rate hike by the US Federal Reserve. This decline was the largest in over two months. According to Bloomberg, traders are now pricing in a more than 50% chance of a hike at the Fed's next meeting in September.

The US Treasury's announcement earlier this month to ramp up bond buybacks had driven gold prices higher by around 10% in August, the largest monthly gain since January. This surge was partly due to concerns over rising sovereign debt and currency devaluation, which has fueled the so-called debasement trade.

Nicky Shiels, head of research and metals strategy at MKS PAMP SA, noted that the 'tug of war' between the dovish Treasury and hawkish Federal Reserve will continue into September. This situation is likely to support gold prices as the US Treasury starts bond buybacks ahead of the Fed meeting.