Gold, silver prices retreat as US inflation, ECB rate hike pressure markets

Mucahithan Avcioglu

Gold and silver prices declined sharply on Thursday as stronger-than-expected US producer inflation fueled expectations of a Federal Reserve rate hike, while the European Central Bank (ECB) raised borrowing costs.

Silver fell 5.5% to $63.62 per ounce as of 1905GMT, while gold declined 1.8% to $4,318.60 per ounce.

The precious metals came under pressure after data showed that US producer prices rose 0.4% month-on-month in August.

Annual producer inflation accelerated to 5.4%, exceeding market expectations of 5.3%, driven by a sharp rise in energy prices and signs of broader cost pass-through across the economy.

The figures strengthened expectations that the Fed could tighten monetary policy further to contain renewed inflationary pressures.

Money markets priced in a probability of more than 70% that the US central bank would raise interest rates at its Sept. 16 meeting.

Meanwhile, the ECB increased its three key interest rates by 25 basis points on Thursday and warned that inflation risks remained tilted to the upside, prompting traders to increase bets on further monetary tightening in the euro area.

Higher interest rates typically weigh on non-yielding precious metals by increasing the opportunity cost of holding them.

Oil prices also rallied amid escalating strikes between the US and Iran in the Middle East, adding to concerns that elevated energy costs could keep inflation high.

Despite Thursday’s losses, silver remained nearly 54% higher compared with a year earlier, while gold was up more than 19% over the same period.