Gold prices remained steady below $4,300, trading around $4,290 an ounce, after a two-day decline. This stability comes as markets anticipate the Federal Reserve's policy decision, with high oil prices continuing to stoke inflation fears. These inflation concerns have solidified expectations for an interest-rate hike from the Fed. Elevated energy prices have pushed bond yields higher, and traders are currently pricing in a 92% chance of the Fed raising rates. Typically, higher borrowing costs are detrimental to gold, which does not yield interest.
The 10-year US Treasury yield reached 5.04% on Tuesday, its highest level since 2007, reflecting investor expectations for the central bank's first rate increase since 2023. Christopher Wong, a strategist at Oversea-Chinese Banking Corp., noted that the primary uncertainty for markets is not the hike itself, but what the Fed signals for future monetary policy. He suggested that if the Fed indicates a possibility of further tightening, gold could be vulnerable and potentially drop towards $4,000 an ounce if the key support level of $4,250 is breached.
Gold has experienced a decline of over 3% in September, falling from above $4,700 an ounce in late August, as traders adjusted their outlook on Fed policy. Despite this, many investors believe that gold will eventually regain momentum, serving its traditional role as a portfolio hedge. The Bloomberg Dollar Spot Index also saw a 0.1% increase, building on a 0.6% gain over the previous two sessions.
