Gold Retreats Amid Anticipation of Interest Rate Trajectory

Gold prices dipped slightly on Thursday as oil prices rose, with investors awaiting key inflation data due this week in search of clues about the Federal Reserve’s interest rate trajectory. Spot gold fell 0.1% to $4,399.99 per ounce, after earlier touching $4,442.70 during the session, while U.S. December gold futures dropped 0.7% to $4,444.50, according to Reuters.

“Caution is dominating gold trading, as it is caught between bets that the Federal Reserve will raise interest rates and a weakening dollar,” said Nikos Tzabouras, market analyst at Tradeweb, owned by Jefferies. Rising oil prices are fueling inflation concerns and expectations of further rate hikes, putting pressure on the precious metal.

Spot gold had fallen as much as 2.4% on Friday after data showed a sharp acceleration in U.S. job growth in August, while the unemployment rate held steady at 4.1%, signaling an improvement in the labor market.

According to CME Group’s FedWatch tool, traders are now pricing in a 60% probability that the Federal Reserve will raise interest rates at its upcoming policy meeting, up from 50% before the data release. Gold, which yields no return, is traditionally used as a hedge against inflation, but higher interest rates reduce its appeal.

Conversely, a decline in the U.S. dollar index made dollar-priced gold cheaper for buyers holding other currencies.

U.S. Producer Price Index data is scheduled for release on Thursday, followed by Consumer Price Index data on Friday, providing further indicators of the Federal Reserve’s monetary policy stance.

Among other precious metals, spot silver fell 0.1% to $66.08 per ounce, platinum rose 0.6% to $1,836.72, and palladium dropped 0.4% to $1,387.43.