Gold falls to Sept. low, as strong PPI data bolsters case for rate hike
Investing.com -- Gold futures fell considerably on Friday amid stronger than expected inflationary pressures for domestic producers last month, bolstering arguments for an interest rate hike by the Federal Reserve next week.
On the Comex division of the New York Mercantile Exchange, gold for December delivery wavered between $1,097.80 and $1,111.90 an ounce, before settling at $1,104.20, down 5.20 or 0.47% for the session. A recent downturn has pushed the precious metal below $1,100 an ounce for the first time in nearly a month. Gold has now closed lower in 13 of the last 17 sessions. For the week, gold futures fell more than $15 an ounce or roughly 1.6%.
Gold likely gained support at $1,081.70, the low from August 7 and was met with resistance at $1,144.70, the high from Sept. 1.
On Friday morning, the U.S. Department of Labor's Bureau of Labor Statistics (BLS) said its headline Producer Price Index for August remained unchanged in August, following a 0.2% gain a month earlier. The reading came in substantially higher than low end of consensus estimates of a 0.6% decline. Meanwhile, the Core PPI-FD, which strips out food and energy prices, ticked up by 0.3%, marking its third consecutive month of significant gains. On a yearly basis, the core reading has increased by 0.9%, providing support to hawkish views for an imminent rate hike.
While the Federal Open Market Committee (FOMC) would like to see long-term inflation reach a targeted goal of 2% before the Fed lifts its benchmark interest rate for the first time in nearly a decade, vice chair Stanley Fischer has indicated that the U.S. central bank could normalize policy before it reaches the threshold. Long-term inflation has remained under 2% in every month for the last three years.
Next week, the Labor Department will release the Consumer Price Index for August on Wednesday, which coincides with the start of the FOMC's two-day September meeting. The Fed's benchmark Federal Funds Rate has remained at its current level of zero to 0.25% since December, 2008. When the economy is growing at a high rate, the U.S. Central Bank typically increases the Fed Funds Rate to encourage people to save more and spend less. As a result, the action can slow the economy and reduce inflationary pressures.
Gold, which is not attached to interest rates or dividends, struggles to compete with high-yield bearing assets in periods of rising rates.
The U.S. Dollar Index, which measures the strength of the greenback versus a basket of six other major currencies, fell more than 0.35% on Friday to an intraday low of 95.28, its lowest level in more than a week. With several hours left in Friday's session, the index was on pace to lose more than 1% for the week.
Dollar-denominated commodities such as gold become more expensive for foreign purchasers when the dollar appreciates.
Silver for December delivery lost 0.190 or 1.30% to close at $14.455 an ounce.
Copper for December delivery gained 0.009 or 0.34% to end the session at $2.456 a pound.
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