Gold Futures Settle Sharply Lower As Dollar Climbs On Rate Hike Bets

Gold prices tumbled on Thursday as the dollar climbed higher on safe-haven demand after data showing a bigger than expected increase in U.S. inflation fueled expectations about more aggressive policy tightening by the Federal Reserve at the upcoming policy meeting, due later this month.

The dollar index rose to a fresh 20-year high at 109.29 before paring some gains. Still, at 108.80, the index remains high up with a gain of nearly 0.8%.

Gold futures for August ended lower by $29.70 or about 1.7% at $1,705.80 an ounce, after dropping to a low of $1,695.00 an ounce earlier in the day.

Silver futures for September ended down by $0.969 at $18.225 an ounce, while Copper futures for September settled at $3.2115 per pound, down $0.1110 from the previous close.

The Fed is expected to increase interest rates by another 75 basis points later this month. A section of analysts expect a sharper 100 basis points hike in interest rate.

On Wednesday, the Bank of Canada lifted its benchmark interest rate by 100 basis points to tame high inflation.

Several other central banks are also likely to tighten their policy stance and announce sharp rate hikes to combat inflation.

In economic releases today, the Labor Department’s report said its producer price index for final demand jumped by 1.1% in June after climbing by an upwardly revised 0.9% in May.

Economists had expected producer prices to increase by 0.8%, matching the advance originally reported for the previous month.

The annual rate of producer price growth accelerated to 11.3% in June, reflecting the largest spike since a record 11.6% jump in March. Economists had expected the annual rate of producer price growth to slow to 10.7 percent in June from 10.9 percent in May.

Another report from the Labor Department showed U.S. consumer prices also surged by more than expected in the month of June.

A separate report from the Labor Department showed first-time claims for U.S. unemployment benefits unexpectedly inched higher in the week ended July 9th, with claims rising to 244,000, an increase of 9,000 from the previous week’s unrevised level of 235,000. The uptick surprised economists, who had expected jobless claims to come in unchanged.

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