Gold prices plummeted, marking a seven-week low, as spot gold fell 3.8% to $4,121.58 per ounce, after touching $4,110.55 earlier, its lowest point since August 5. US gold futures also dropped by 3.9% to $4,153.70. This significant decline was attributed to a combination of factors: a sharp rise in crude oil prices, which fueled inflation concerns, and a stronger US dollar along with higher Treasury yields.
Market analysts, like Jim Wyckoff from American Gold Exchange, noted that the surge in crude oil prices, particularly after President Donald Trump rejected a peace deal from Iran regarding the Strait of Hormuz, suggested "still more problematic price inflation." This, in turn, bolstered expectations for a tighter Federal Reserve monetary policy. The CME's FedWatch Tool indicated about a 94% chance of one rate hike in December, with traders pricing in a roughly 70% chance of a second consecutive Fed rate hike in October. The Federal Reserve had already increased benchmark rates by a quarter percentage point earlier in September and signaled more hikes are likely.
The appeal of gold, traditionally an inflation hedge, was diminished by these rising interest rates, as investors increasingly favored yield-bearing assets. The yield on the benchmark 10-year US Treasury note reached its highest level since June 2007, and two-year Treasury yields, which are highly sensitive to interest-rate expectations, also rose sharply. This created what Wyckoff described as a "perfect storm to push the metals prices sharply lower." Cleveland Fed President Beth Hammack echoed the hawkish stance, warning that inflation risks remain elevated and further interest rate increases may be necessary.
