Spot gold and silver prices saw significant drops on Thursday, with spot gold trading near $4,362.30 an ounce, down 0.87%, and spot silver at $64.920, down 3.34%. This decline was driven by several factors including hotter U.S. wholesale inflation, steady jobless claims, and a 25-basis-point interest rate hike by the European Central Bank (ECB). The August Producer Price Index (PPI) rose 0.4% month-over-month and 5.4% year-over-year, while core PPI was up 0.3% monthly and 4.7% annually. Goods inflation, particularly a 4.2% jump in energy and a 24.1% surge in diesel fuel, contributed significantly to these figures.
The firm labor market, evidenced by weekly jobless claims falling to 206,000, further supported the likelihood of a Fed rate hike. Markets were pricing in roughly a 60% probability of a Fed hike at the September 15-16 meeting, with the 10-year Treasury yield trading near 4.8%. The ECB's rate hike to 2.50% also reinforced the global "higher-for-longer" rate trade, adding pressure to precious metals.
The sell-off in gold and silver was exacerbated by surging oil prices, with Brent crude rising about 4% to $105.07, its highest since May, amid increased tensions between the United States and Iran. West Texas Intermediate (WTI) also moved above $100 a barrel. This surge in crude oil pushed the 10-year Treasury yield above 4.90%, its highest since November 2023, and the dollar strengthened. These movements worked against gold, causing it to lose key support levels. The bond market is now heavily focused on energy-driven inflation risk, rather than solely on PPI data, indicating that rising crude prices alone can fuel rate-hike expectations.
Analysts noted that gold and silver are currently trading as a rates-and-dollar market, rather than a safe-haven asset. Gold broke below the $4,396 to $4,422 area and tested its 200-day EMA at $4,341, while silver fell below its 200-day EMA at $65.718 and 50-day EMA at $65.471. The selloff highlights that oil-driven inflation is impacting metals through the yield channel more quickly than geopolitical demand is supporting them. Traders are now anticipating Friday’s Consumer Price Index (CPI) report as the final major inflation input before the Fed decision, with a cool CPI needed for a potential rebound in precious metals, otherwise further downside tests are expected.
