Gold Prices Face Fed Hike Headwinds Despite Strong Demand

The Federal Reserve's decision to raise interest rates is becoming the immediate obstacle for gold prices. The August jobs report showed that US non-farm payrolls increased by 162,000 in August, while unemployment held at 4.1%, indicating a strong economy.

However, inflation added another complication with producer prices rising 0.4% in August and 5.4% year on year. Energy costs were a major contributor to both reports, making markets assign close to an 86% probability to a 25-basis-point Fed hike at the September 15-16 meeting.

Despite this, gold prices have not lost momentum entirely. Asian demand for gold is particularly strong, with Asian-listed funds attracting about $2 billion in August, their strongest month since February.