Gold declines as expectations rise for a US interest rate hike

Gold fell 0.9 percent in spot trading to $4,308.24 an ounce, after dropping for a third consecutive week on Friday. US gold futures declined 1.4 percent to $4,348.50.

Giovanni Staunovo, an analyst at UBS, said, “The market is almost unanimous in expecting the Federal Reserve to raise interest rates following last week’s consumer price index data.”

At the same time, a renewed rise in oil prices could heighten inflation concerns and keep the Federal Reserve on its path toward tightening monetary policy.

Data released on Friday showed that US consumer price inflation rose in August, while one key measure of core inflation recorded its largest increase in four months, bolstering expectations of a US interest rate hike.

According to the CME FedWatch Tool, traders are pricing in an approximately 89 percent probability of a rate hike during the US central bank’s monetary policy meeting on September 15–16, up from around 67 percent prior to the release of last week’s inflation data.

The Bank of Japan is also expected to raise interest rates on Friday, amid rising energy prices and no signs of easing tensions in the Middle East.

Major banks expect the US Federal Reserve to raise interest rates by 25 basis points this week following the inflation data, as markets await the monetary policy decision to be announced on Wednesday.