Gold Tumbles as 89% Hike Odds Pressure Fed Decision

Gold prices fell for the third consecutive week due to increased pressure from a potential Federal Reserve rate hike. The CME FedWatch Tool indicates an 89% probability of a rate hike on September 16, up from 67% before the latest inflation report. This has put downward pressure on gold, with spot gold falling 0.9% to $4,308.24 per ounce and US gold futures dropping 1.4% to $4,348.50.

The dollar reached its highest level in more than a week, making gold more expensive in other currencies and reducing demand. However, Goldman Sachs and HSBC target a 25-basis-point Fed hike, while the Bank of Japan targets an increase on September 18. Hawkish guidance from the Fed could deepen gold's pullback, while a pause or softer outlook could support prices.

UBS analyst Giovanni Staunovo noted that markets have priced in the hike after the latest inflation data, and rising oil prices could keep the Fed 'on a hawkish footing.' A 25-basis-point hike with hawkish guidance would keep real yields elevated and could extend gold's pullback. On the other hand, a hike with softer guidance could reduce expectations for further increases, stabilize gold, and create a contrarian entry point.