Gold prices stabilized near a seven-week low on Tuesday, September 29, after experiencing a 4% tumble in the previous session. Spot gold was trading around $4,120 an ounce, having fallen to $4,110.5, its lowest level since August 5. This decline was largely attributed to sustained high energy prices, stemming from an eight-month standoff between the U.S. and Iran over the Strait of Hormuz, which amplified pressure on the Federal Reserve to continue raising interest rates. The market currently assigns about a 70% probability to another rate hike in October.
The elevated energy prices have contributed to concerns about persistent inflation, leading to a sell-off in the U.S. Treasury market. The benchmark 10-year Treasury yield climbed to a fresh 19-year high, making non-yielding assets like gold less attractive to investors. The U.S. Dollar Index remained relatively stable at 101.2, also posing a headwind for dollar-denominated gold as it becomes more expensive for international buyers.
Gold has seen a substantial decline of approximately 7% in September, despite touching highs around $4,510 an ounce earlier in the month. This drop followed the Fed's first interest rate increase since 2023, implemented to combat sticky U.S. inflation, with policymakers signaling the potential for additional hikes. Federal Reserve Governor Lisa Cook warned that potential productivity gains from artificial intelligence might not be sufficient to offset near-term price pressures, further fueling inflation concerns.
Market participants are closely monitoring upcoming U.S. economic data for further indications on the Federal Reserve's policy path. Key releases this week include the personal consumption expenditure (PCE) data, the Fed's preferred inflation gauge, on Wednesday, and the non-farm payrolls report on Friday. These reports are expected to provide crucial insights into inflation trends and labor market strength, which will heavily influence the Fed's future interest rate decisions.
