Gold Prices Slump Ahead of US Inflation Report and Rate Hike Bets

Spot gold prices are heading for their third consecutive weekly loss despite edging higher on Friday. This comes as market expectations for a Federal Reserve interest rate hike strengthen, with traders awaiting a key U.S. inflation report later in the day.

The U.S. Producer Price Index for final demand rose 0.4% in August, following an upwardly revised 0.1% gain in July. This data nudged up bets that the Fed will raise interest rates at its meeting next week, and spot gold subsequently fell nearly 2%.

Despite gold being known as an inflation hedge, rising interest rates often pressure the metal, which offers no yield. Wael Makarem, financial markets strategist lead at Exness, said 'A stronger-than-expected reading would reinforce the case for several interest rate increases, potentially pushing Treasury yields and the dollar higher and placing additional pressure on gold.'