Gold prices are currently hovering around a seven-week low after experiencing a significant decline, with spot gold trading at approximately $4,117.60 an ounce in Singapore. This follows a 4% tumble on Monday, September 28, pushing it to its lowest level since August 5. The precious metal is down about 7% in September, despite touching $4,510 an ounce earlier in the month.
The primary drivers behind this downturn are the rising U.S. Treasury yields and a strengthened dollar. The benchmark 10-year Treasury rate has climbed to a new 19-year high, increasing the opportunity cost of holding non-yielding assets like gold. Analysts, such as Jim Wyckoff from American Gold Exchange, note that higher crude oil prices are fueling expectations of more problematic price inflation, which in turn suggests a tighter Federal Reserve monetary policy. The U.S. Dollar Index has remained largely unchanged at 101.2, making dollar-denominated gold more expensive for international buyers.
Expectations for further interest rate hikes by the Federal Reserve are high, with investors currently seeing about a 70% probability of a hike in October. This sentiment is reinforced by sticky U.S. inflation and elevated energy costs, stemming from the ongoing standoff between the U.S. and Iran over the Strait of Hormuz. The conflict, now in its eighth month, continues to impact global energy flows and inflation expectations. Federal Reserve Governor Lisa Cook stated that while AI may boost productivity, it might not offset near-term inflationary pressures, and heavy investment in data centers is increasing competition for resources.
Analysts from China Zheshang Bank observe that significant trading volume accumulated near September's highs, indicating that any further upward movement will face considerable resistance in the short term. Buyers who purchased at higher levels are likely to sell when prices rebound, making a quick breakout difficult. Markets are now looking ahead to Wednesday's personal consumption expenditures inflation data and Friday's nonfarm payrolls report for further clues on the future path of interest rates.
