Gold Prices Fall as U.S. Inflation Data Boosts Fed Rate Hike Expectations

Gold prices declined on Monday as stronger-than-expected U.S. inflation data solidified market expectations for an imminent Federal Reserve interest rate hike. The pressure on the precious metal was compounded by a surge in oil prices, which threatens to fuel further inflation.

As of 21:29 ET, key precious metals prices were lower, according to data from Investing.com:

• Spot gold (XAU/USD) fell 0.3% to $4,335.98 an ounce.
• Gold futures declined 0.7% to $4,376.92 an ounce.
• Spot silver (XAG/USD) dropped 0.7% to $64.09 an ounce.

Inflation Data Drives Rate Bets

The move lower was primarily driven by August inflation figures showing the core consumer price index (CPI), which excludes volatile food and energy costs, rose 0.3% month-on-month. This reading has intensified speculation that the Fed will deliver an interest rate increase at its upcoming meeting.

Following the data, markets are pricing in an 88% probability of a rate hike in September, according to the source. Higher interest rates typically weigh on gold, as the non-yielding asset becomes less attractive to investors compared to income-generating assets like bonds. The U.S. Dollar Index also edged up 0.1%, adding further pressure on dollar-denominated gold.

Oil Surge and Geopolitical Risks

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Adding to the complex inflation outlook, Brent crude prices climbed toward $107 a barrel after gaining nearly 9% last week. The surge is linked to ongoing conflict in the Middle East, which is disrupting energy markets and stoking inflation concerns.

Efforts to stabilize energy shipments were dealt a setback after a planned meeting between Iran and several Gulf nations to establish a temporary shipping lane through the Strait of Hormuz was postponed, according to the report.

Analyst Outlook

Despite the near-term headwinds from expected monetary tightening, analysts at ANZ said they remain constructive on gold's longer-term prospects. The bank noted that inflation driven by geopolitical disruptions should preserve gold’s safe-haven appeal.

ANZ maintained its 12-month price target for gold at $5,400 an ounce, citing recovering investment demand through ETFs and strong institutional buying in China and India as additional sources of support.