Gold Falls Despite Middle East Tensions as Higher Yields Weaken Demand
Gold prices rose slightly on Friday but still fell for a third consecutive week as investors awaited US consumer inflation data that could influence the Federal Reserve's decision to raise interest rates. The metal is down over 2% this week due to higher Treasury yields and increased expectations of a rate hike in September.
The 10-year US yield has approached 5%, while markets now estimate a 70% chance of a Fed increase next month. Thursday's producer-price report showed inflation remaining too persistent for the Fed to relax, with the producer price index rising 0.4% in August and 5.4% from last year.
Samer Hasn of XS.com stated that gold is being squeezed by higher global bond yields and a Middle East conflict lifting oil prices and inflation expectations. The complication is that geopolitical tension, which normally supports gold, is currently strengthening the case for tighter monetary policy through higher energy costs.
The upcoming consumer-price report on Friday will be the immediate test. Consensus estimates compiled by FactSet point to headline CPI rising 3.3% from last year, with core inflation at 2.4%. Markets have already pushed the probability of a September Fed hike to around 70%.