Gold and Bitcoin Fall as 5.4% US Inflation Overpowers Record $18B ETF Demand

Gold and Bitcoin fell Thursday after hotter U.S. inflation pushed Treasury yields and Federal Reserve rate-hike expectations higher, creating a sharp contrast with record institutional demand for bullion.

Spot gold dropped more than 1% toward $4,358 an ounce, while Bitcoin also weakened as investors moved away from non-yielding assets. August producer prices rose 0.4% month over month and 5.4% year over year, slightly above the 5.3% annual consensus.

The reaction was driven largely by rates. The 10-year Treasury yield moved around 4.9%, while markets raised the probability of a September Fed hike to roughly 70%, up from around 62% before the PPI release.

Record ETF Demand Meets a Rate Shock

Gold’s decline is notable because institutional demand had just delivered one of its strongest months on record.

The World Gold Council’s August data showed global gold ETFs attracted $18 billion, the second-largest monthly inflow ever. Holdings increased by 121 tonnes to a record 4,189 tonnes, while assets under management jumped 16% to $615 billion.

Europe led with $7.9 billion of inflows, while North American funds added $7.7 billion.

That strengthens the longer-term institutional gold story, but Thursday showed that even strong ETF buying cannot completely offset a sudden jump in real yields and rate expectations.