Gold prices experienced a notable decline on Tuesday, extending a pullback from last week's more than three-month high and reaching a fresh two-week low. Spot gold was trading near $4,327.70 an ounce, down 2.68%, and later bid at $4,364.50, down 1.85%, after touching an intraday low of $4,326. This downturn is primarily attributed to heightened expectations of a Federal Reserve interest rate hike this month, following hawkish remarks from Fed officials and a surge in U.S. Treasury yields.
The probability of a September rate hike, as indicated by the CME FedWatch Tool, rose to approximately 65-70% from around 40% a week prior. This surge in expectations was largely influenced by Fed Chair Kevin Warsh's rhetoric on inflation at the Jackson Hole Symposium and Governor Michael Barr's statements emphasizing the need for a rate hike if inflation persists. The 10-year U.S. Treasury yield climbed to about 4.79%, its highest level since January 2025, while the two-year yield rose to 4.39%, putting significant pressure on non-yielding gold.
Adding to the inflationary concerns and reinforcing rate hike bets were rising crude oil prices. Brent crude surged by 4.6% to $94.65 a barrel, and U.S. crude increased by 5.2% to $90.22, marking its first close above $90 in over a month. This oil price hike was triggered by U.S. military strikes on Iran and the effective shutdown of the Strait of Hormuz, a critical global oil shipping lane. Despite geopolitical tensions typically supporting gold as a safe haven, the market's current focus on rising interest rates and Treasury yields is overshadowing this effect.
Gold's technical indicators also showed weakness, with the metal slicing through its 20-day and 100-day moving averages and testing critical support levels between $4,329 and $4,311. Analyst Phil Streible of Blue Line Futures noted that a close below $4,350 would be a significant indicator, and gold did indeed fall below that level. However, Streible also suggested that much of the sell-off might be a correction after a $600 run, with gold having fallen $150 in one day.
While some U.S. economic data, such as a slight rise in July job openings to 7.3 million and an August ISM manufacturing index slip to 54.6 from 55.6, were not weak enough to deter the hawkish Fed sentiment, upcoming labor market reports are keenly awaited. The market remains dependent on whether Friday's payrolls report cools the September hike trade, as higher yields and a stronger dollar continue to be the dominant short-term factors influencing gold prices. The U.S. Dollar Index (DXY) was trading around 99.64, up 0.23% on the day, further contributing to gold's decline.
