Gold, Silver Prices Plummet as Hot PPI Fuels Higher-For-Longer Rate Trade

Spot gold and silver prices plummeted in early U.S. trading Thursday after hotter-than-expected wholesale inflation data, a steady jobless claims report, and a 25-basis-point European Central Bank (ECB) rate hike reinforced the global 'higher-for-longer' interest rate trade.

The August Producer Price Index (PPI) rose 0.4% on the month and 5.4% from a year earlier, with core producer prices up 0.3% on the month and 4.7% year-over-year. Goods inflation did the damage, led by a 4.2% jump in energy and a 24.1% surge in diesel fuel.

The ECB raised its benchmark rate to 2.50%, citing energy-driven inflation pressure from the Iran war. Markets still priced a roughly 60% probability of a Federal Reserve (Fed) hike at the September 15-16 meeting, with the 10-year Treasury yield trading near the 4.8% area.

Gold and silver are now trading as a rates-and-dollar market rather than a clean safe-haven market. The selloff shows that oil-driven inflation is working against metals through the yield channel faster than it is supporting them through geopolitical demand.