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Gold Drops as Traders Brace for Fed Hike Amid High US Inflation

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Gold Drops as Traders Brace for Fed Hike Amid High US Inflation
Gold Drops as Traders Brace for Fed Hike Amid High US Inflation

Gold fell after high producer prices exceeded market expectations, reinforcing concerns of the Federal Reserve’s aggressive policy stance to combat stubbornly high inflation.

Prices paid to US producers surged in May, underscoring persistent inflationary pressures across the economy, figures showed Tuesday. That added to data released last week showing consumer inflation unexpectedly accelerated to its highest level in four decades.

Investors are now increasingly betting that Federal Reserve officials will consider the biggest interest-rate increase since 1994 when they meet this week. JPMorgan Chase & Co. and Wells Fargo & Co. are among a number of banks that are now expecting the Fed to hike by 75 basis points. That damps demand for precious metals, which bear no interest. 

“Gold competes against the bond markets as a safe haven,” Bob Haberkorn, senior market strategist at RJO Futures, said by phone. A potential rate hike of 75 to 100 basis points by the Fed “might make the bond market a little more attractive to safe haven buyers than the gold market would normally be.”

Gold Drops as Traders Brace for Fed Hike Amid High US Inflation

Still, there some underlying support for gold as a haven asset as recession risks loom on the back of aggressive monetary-policy tightening. 

Spot gold sank 0.4% to $1,812.26 an ounce as of 12:19 p.m. in New York. Silver and platinum both dropped. Palladium edged higher, crawling back from the lowest level this year.

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