Rate Hike Fears Slam Gold and Bitcoin Amid Hot US Inflation

Gold and Bitcoin prices fell sharply on Thursday after a hotter-than-expected US inflation report pushed Treasury yields higher, increasing expectations of a Federal Reserve rate hike. The August producer price index (PPI) rose 0.4% month-over-month and 5.4% year-over-year, exceeding the consensus estimate of 5.3%. As a result, gold prices dropped over 1% to around $4,358 an ounce.

The 10-year Treasury yield climbed towards 4.9%, while the probability of a September Fed rate hike rose to around 70%, up from 62% before the PPI release. Despite record institutional demand for gold, with global gold ETFs attracting $18 billion in August and holdings increasing by 121 tonnes to a record 4,189 tonnes, the sharp jump in real yields and rate expectations proved too much for the metal.

Bitcoin also declined, falling in line with gold as investors moved away from non-yielding assets. The cryptocurrency's decline reinforces its growing short-term relationship with gold, both of which struggle to compete with Treasury bonds when rates climb towards 5%. With the next major test coming on Friday's US CPI report, the outlook for both gold and Bitcoin remains uncertain.