Gold Price Slumps as Hawkish Fed Expectations Boost Interest Rates

The gold price has been subdued at the start of the Federal Reserve's monetary policy week, trading around $4,330. Fed policymakers' interest rate expectations have significantly influenced the market after the recent hot US Producer Price Index (PPI) and Consumer Price Index (CPI) reports for August.

Last week's PPI report showed that headline producer inflation accelerated to 5.4% Year-on-Year from 4.8% in July, while the CPI report revealed a 0.3% faster Month-on-Month core inflation growth than expected.

The CME FedWatch tool indicates an 86.5% chance of the Fed raising interest rates at its policy meeting on Wednesday, up from 59.5% seen before the release of the US CPI and PPI data.

Higher interest rate expectations boost yields on interest-bearing assets, such as 10-year US Treasury Yields, which trade close to their fresh highs of 4.99%, a level not seen since November 2023.