Gold and Bitcoin Fall as Hot US Inflation Report Sparks Rate Hike Bets
The recent US inflation report sent shockwaves through financial markets on September 10. The Producer Price Index (PPI) rose 0.4% in August, matching forecasts, but the annual rate reached 5.4%, slightly above the expected 5.3%. This hot reading had a significant impact on gold and Bitcoin, with both assets experiencing declines.
Gold, often considered a safe-haven asset, fell more than 1% to around $4,350 after trading above $4,400. For forex traders, this move means potential losses of approximately $10,000 on a one-lot long position, excluding trading costs. The decline in gold prices can be attributed to the fact that it pays no yield, making it less attractive when cash and government debt offer higher yields.
The 10-year Treasury yield pushed above 4.9%, its highest since October 2023, while the 30-year reached roughly 5.35%. This increase in yields makes cash and government debt more appealing, further pressuring gold prices. Bitcoin also declined due to its lack of yield, which is a crucial factor for institutional investors.
The recent inflation report has increased the likelihood of a September rate hike by the Federal Reserve. According to CME FedWatch pricing, there's now a 70% chance of a rate increase after the data release, up from around 62%. The dollar also strengthened as rate-hike bets rose, adding another headwind for dollar-priced gold.
The next test comes on Friday with the US Consumer Price Index (CPI) report. Another hot reading would put even more pressure on the Fed to hike interest rates and further test how far inflation hedges can fall when inflation itself becomes a problem.