Gold Slumps on Soaring Oil Costs and Higher US Inflation

Gold prices tumbled to near $4,320 in early Asian trading on Friday as rising oil costs and higher US Producer Price Index (PPI) inflation data fueled bets for a Federal Reserve interest rate hike. The PPI rose 5.4% year-over-year in August, exceeding market expectations of 5.3%. Core PPI matched consensus at 4.6%, up from the previous reading.

Traders are now pricing in a 70% probability of an increase in US interest rates next week, up from 62% before the data, according to the CME FedWatch Tool. Higher interest rates typically weigh on gold because the precious metal does not pay interest, making yield-bearing assets relatively more attractive.

A persistent rise in geopolitical risks has stoked inflation fears and supported the case for a rate hike at next week's policy meeting. Iran's attack on oil tankers near the Strait of Hormuz further heightened concerns over global supplies.