Inflation Expectations Crush Gold and Silver Prices as Rate Hike Odds Soar
The price of gold and silver fell sharply on Thursday, despite inflation expectations running high. The U.S. Bureau of Labor Statistics reported that its Producer Price Index (PPI) rose 0.4% in August, matching forecasts, but the annual rate accelerated to 5.4%, a tenth above what economists expected.
This led markets to reprice the Federal Reserve's September 16 meeting, with traders now pricing roughly 60% odds of a rate hike - a sharp reversal from earlier expectations that the Fed was done raising rates.
Gold slipped toward $4,370 an ounce, down about 0.7-0.9% on the day, while silver broke below $65 an ounce after opening near $67.94.
The mechanism behind this move is simple: when the market expects higher interest rates, it also expects yields on bonds and savings accounts to rise, making non-yielding assets like gold and silver less attractive, even in the face of inflation.