Gold Volatility Spikes as Rate Hike Bets Rise Amid Energy Costs

The price of gold experienced a technical rebound on Friday, September 11, rising approximately 1% intraday ahead of the release of the U.S. August Consumer Price Index (CPI). However, this bounce did not alter the overall weak trajectory for the week.

Following the release of the U.S. Producer Price Index (PPI) on Thursday, gold prices quickly reversed gains while the yield on the U.S. 10-year Treasury note rose to the 4.94%-4.97% range. The market pricing for a 25-basis-point rate hike at the Federal Reserve's monetary policy meeting on September 15-16 increased to approximately 70%. Brent crude oil traded around $104 per barrel, with escalating conflicts in Middle Eastern shipping lanes reintroducing an energy premium into inflation expectations.

The primary driver of short-term gold volatility is not sentiment but real interest rates. With the 10-year U.S. Treasury yield approaching 5%, holding gold means forgoing higher coupon income. Meanwhile, Brent crude oil has rebounded more than 30% from its August lows, reclaiming the $100 per barrel mark.