Oil Surge Boosts Rate-Hike Bets, Gold Takes Hit

Gold prices slipped as oil surged by more than 2% on supply fears, causing traders to boost their expectations of a Federal Reserve rate hike at this week's meeting.

The CME FedWatch Tool showed that traders are now pricing an 86% chance of a rate hike at the September 15-16 meeting, up from about 67% before the hotter August inflation data was released.

This shift in expectations is significant for gold because it doesn't pay interest. When rate expectations rise, short-term bond yields often climb too, making yield-paying alternatives more attractive.

The key link here is 'real yields' - bond returns after inflation - which tend to move inversely to bullion in the short run as the opportunity cost of holding gold changes.