Spot gold and silver prices saw sharp declines in early U.S. trading on Tuesday, with spot gold falling 1.72% to trade near $4,370.80 an ounce and spot silver down 2.73% to $64.600. This downturn was largely attributed to a global bond sell-off, a firmer U.S. dollar, and surging oil prices. Traders are increasingly pricing in a higher probability of a September Federal Reserve rate hike, with probabilities hovering around 66% to 67.5%.
The market's shift in expectations followed hawkish comments from Fed Chair Kevin Warsh at Jackson Hole, where he indicated the Fed would "have work to do" if inflation did not return to its 2% target. This led to a repricing of rate hike probabilities, which were below 40% before his speech, and pushed the 10-year Treasury yield to about 4.79%, its highest since January 2025. The two-year yield also rose to near 4.35%. Rising tensions in the Middle East, including U.S.-Iran strikes and the effective shutdown of the Strait of Hormuz, contributed to a surge in oil prices, with Brent crude up 4.6% to $94.65 a barrel and U.S. crude up 5.2% to $90.22.
Precious metals are currently trading more as a reaction to the broader rates shock rather than acting as traditional safe-haven assets. Gold fell below its 200-day average and failed to reclaim the $4,452 to $4,487 resistance band, marking its lowest level since August 19. Silver also broke below key support areas. Investors are now keenly awaiting upcoming U.S. labor market data, including the JOLTS job openings, ISM manufacturing report, ADP employment report, and nonfarm payrolls data, for further clues on monetary policy. While gold typically acts as an inflation hedge, higher interest rates diminish the appeal of non-yielding bullion.
