Gold hits two-month low as oil-driven inflation worries lift rate-hike bets

what happened

Gold dropped to its lowest level since August 4 on Thursday, according to Reuters, as crude rose to a five-month high after Houthi attacks in Saudi Arabia raised fears of supply disruption from the region. By 11:25 a.m. EDT, spot gold had lost 2.1% to $4,055.69 an ounce, while December U.S. gold futures declined 1.9% to $4,071.40.

Costlier energy revived concerns about inflation and strengthened the view that the Federal Reserve may keep borrowing costs high for longer. Recent US consumer and producer price readings came in hotter than expected. The Fed is widely expected to hold rates at its October 27-28 meeting, but CME's FedWatch Tool puts the chance of a December increase at 78%.

Silver fell 4.6% to $55.28, platinum dropped 2.9% to $1,582.60 and palladium lost 2.6% to $1,060.75. India has approved imports of roughly 6,500 metric tons of silver in the coming six months as the largest consumer of the metal prepares for festive-season demand. Intesa Sanpaolo economists expect precious metals to lack clear direction while volatility stays high.

why it matters

Gold is usually seen as a hedge against inflation, but higher rates reduce the appeal of an asset that pays no yield, so price action now depends largely on rate expectations. Key events ahead are the Fed meeting and the PCE inflation data due October 29.

market impact

Gold and silver: higher oil and firmer Fed rate expectations put pressure on precious metals

tags

instruments