Gold Holds Near $4,300 as Oil Price Surge Boosts Fed Hike Odds

Gold prices were little changed on Tuesday, holding near the $4,300 level after falling more than 1% in the prior session. The metal faces significant headwinds as disruptions to Middle East oil supplies are stoking inflation concerns and strengthening expectations for an imminent interest rate hike by the U.S. Federal Reserve.

As of 22:06 ET (02:06 GMT), spot gold (XAU/USD) was trading up 0.2% at $4,306.86 an ounce, while gold futures saw a marginal decline to $4,346.65.

Oil Disruption Fuels Rate Hike Bets

Bullion has come under renewed pressure as investors assess the impact of rising energy costs on inflation. The recent shutdown of Saudi Arabia's East-West pipeline has pushed oil prices higher, increasing the risk that inflation will remain elevated and prompting a hawkish shift in monetary policy expectations.

Markets are now pricing in approximately a 92% probability of a Federal Reserve rate increase this week, according to Investing.com. Higher interest rates tend to weigh on gold, a non-yielding asset, as they increase the opportunity cost of holding it relative to interest-bearing instruments like bonds.

Rising Yields and Stronger Dollar Add Pressure

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The heightened inflation risk has also pushed U.S. Treasury yields higher, adding to the pressure on gold. On Monday, the benchmark 10-year U.S. Treasury yield briefly touched 5% for the first time in almost three years.

A firmer U.S. dollar, with the Dollar Index climbing to 99.60, is creating an additional headwind. A stronger dollar makes gold more expensive for holders of other currencies, which can dampen international demand.

Long-Term Outlook Remains Constructive

Despite the near-term challenges, which have pushed gold down more than 3% in September, some analysts maintain a supportive long-term outlook for the metal. The view is based on gold's traditional role as a portfolio hedge and expectations of continued structural demand.

Citing a more supportive macroeconomic backdrop, analysts at OCBC have raised their precious metals forecasts. The bank now projects gold will reach $4,600 an ounce by December 2026, with a corresponding target of $69.70 an ounce for silver.