Gold Tumbles as US Inflation Rises, Fed Rate Hike Bets Soar
Gold prices edged lower on Monday after hotter-than-expected US inflation data raised expectations of a Federal Reserve interest rate hike later this week. The latest inflation report showed a 0.3% month-on-month increase in the core consumer price index, excluding food and energy costs.
The rising inflation pressures have lifted bets for a September rate hike to around an 88% probability, according to markets. Higher borrowing costs typically weigh on gold as it generates no interest, making yield-producing assets more attractive.
Meanwhile, oil prices surged toward $107 a barrel after rising almost 9% last week, complicating the inflation outlook due to Middle East tensions. A meeting between Iran and several Gulf nations to establish a temporary shipping lane through the Strait of Hormuz was postponed, leaving efforts to increase shipments uncertain.
Despite rate hike risks, ANZ remains constructive on gold, expecting escalating Middle East tensions and higher energy prices to drive inflation higher. The bank forecasts three 25 basis point Fed rate hikes by March 2027 and maintains its 12-month gold price target at $5,400 an ounce.