Gold prices in international markets fell more than 1% on Thursday after stronger-than-expected inflation signals from the US and rising oil prices fuelled expectations of tighter monetary policy by the Federal Reserve.
Spot gold fell 1.2% to $4,349.32 per ounce around 7 pm IST, while US gold futures declined 1.6% to $4,391.30.
US producer prices increased in line with expectations in August, driven partly by a rebound in energy costs. Analysts said the data pointed to some pickup in underlying inflationary pressures in the US economy, with higher energy prices adding to the concerns.
Traders are now pricing in a 70% chance of a Fed rate hike next week, up from 62% before the data, according to the CME FedWatch Tool.
The US dollar strengthened, making gold priced in the greenback more expensive for buyers holding other currencies. Higher 10-year US Treasury yields also weighed on bullion, as rising yields increase the opportunity cost of holding the non-yielding asset.
“Bonds have to reflect more persistent and higher inflationary pressures from higher oil prices, which is seeing gold prices drop,” analysts said.
Among other precious metals, spot silver fell 4.2% to $64.47 an ounce, platinum declined 4.9% to $1,802.48 and palladium dropped 4.3% to $1,295.23.
In domestic markets, however, gold prices rebounded after three sessions of losses, rising Rs 600 to Rs 1,58,600 per 10 gram in the national capital on Thursday on fresh buying by retailers and stockists. Gold of 99.9% purity had closed at Rs 1,58,000 per 10 gram in the previous session, according to the All India Sarafa Association.
Silver extended its rally for a third consecutive session, climbing Rs 1,200 to Rs 2,44,600 per kg, inclusive of all taxes, from Wednesday's close of Rs 2,43,400.
“Gold slipped under $4,400 and silver eased below $66 an ounce on Thursday as investors turned cautious ahead of the inflation print that will shape the Fed's September 15-16 decision,” said Kaynat Chainwala, AVP, Commodity Research, Kotak Securities.