Gold falls over 1% on expectations for early US rate hike

Gold fell more than 1% after a jump in US producer prices fueled expectations for sooner-than-expected interest rate hikes ahead of the Federal Reserve’s two-day meeting, Reuters reported,

Spot gold fell 0.9% to $1,771.76 per ounce by 10:17 a.m. ET (1517 GMT). US gold futures dropped 0.7% to $1,775.10.

US producer prices increased more than expected in November as supply constraints persisted, supporting views that inflation could remain uncomfortably high for sometime.

“Producer prices were higher than expected indicating continued inflation, and gold is viewed as an inflation hedge. But in reality, we’re seeing the opposite where hot inflation could mean faster interest rate hikes,” said David Meger, director of metals trading at High Ridge Futures.

“This is why inflation is called a double edged sword.”

Interest rate hikes tend to push government bond yields up, raising the opportunity cost of holding non-yielding bullion.