Gold Falls as Strong Economy Boosts Rate Hike Odds

The U.S. economy posted its best month in over five years in September, according to S&P Global's flash Composite PMI report. Gold prices fell 1.53% to $4,291.37 on the day, while silver dropped 3.51% to $64.71.

However, the same report indicates that input costs rose at their fastest pace in four years and order backlogs hit their most severe level since the pandemic. This suggests demand-driven inflationary pressure, which is typically supportive of gold prices.

Credit Suisse's Chris Williamson described the economy as 'booming,' with output growing at the fastest rate in 62 months. The strong growth data increased the likelihood of another Federal Reserve interest rate hike, making holding gold less attractive compared to interest-paying assets.

Despite this, investors should be cautious about the inflationary implications of the report. Rising input costs and backlogs may indicate a tighter supply expansion, where nominal yields could rise while actual inflation continues to build.