Gold Prices Fall Over 1% as Hawkish Fed Bets and High Oil Prices Weigh on Bullion

Gold prices fell sharply on Monday, extending recent losses as persistent inflation concerns and the prospect of further U.S. interest rate hikes dampened the appeal of the non-yielding metal.

By 8:42 PM ET (00:42 GMT), spot gold was down 1.1% at $4,236.33 per ounce, while gold futures for December delivery had dropped 1.2% to $4,270.50 per ounce, according to Investing.com data.

Higher-for-Longer Rates in Focus

The primary driver for gold's decline is the market's growing conviction that the Federal Reserve will keep interest rates higher for longer to combat inflation. Persistently elevated energy prices, fueled by geopolitical tensions surrounding the Strait of Hormuz, are adding to these inflationary pressures.

Cleveland Fed President Beth Hammack recently noted that stronger growth expectations and concerns over government debt are pushing long-term Treasury yields higher. Following a 25-basis-point rate hike in mid-September, markets are now pricing in approximately a 65% probability of another increase in October. Higher interest rates increase the opportunity cost of holding gold, which does not offer a yield.

Market Context and Other Metals

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Gold has been trading within a range of $4,230 to $4,510 this month as investors weigh the central bank's policy path. The current price remains significantly below the record high of nearly $5,600 reached in January. Analysts at ANZ noted that while the macroeconomic backdrop of higher yields and a strong dollar presents challenges for gold, demand from exchange-traded funds (ETFs) has remained firm, with holdings increasing by about 50 tonnes this month.

Other precious metals also faced downward pressure:

• Silver fell 1.7% to $63.24 an ounce.
• Platinum declined 1.3% to $1,758.04 an ounce.

Upcoming Economic Data

Investors are now looking ahead to key U.S. economic reports for further clues on the Fed's next move. The August Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, is due on Wednesday, followed by the September jobs report on Friday. These releases will be critical in shaping the central bank's outlook on inflation and the labor market.