Gold Stabilizes as Strong U.S. Data, Oil Prices Bolster Fed Hike Bets

Gold prices found some stability on Thursday following a significant selloff, as traders weighed the impact of rising oil prices and strong U.S. economic data. These factors have intensified expectations for further interest rate hikes from the Federal Reserve, keeping a lid on the precious metal's gains.

Hawkish Drivers Weigh on Bullion

Recent economic reports have reinforced the case for a more restrictive monetary policy. According to Investing.com, U.S. business activity expanded at its fastest pace in more than five years, suggesting the economy remains resilient despite higher borrowing costs. This prompted hawkish commentary from central bank officials.

Federal Reserve Governor Michael Barr stated that further rate increases are likely needed to bring inflation back to the central bank's 2% target. In response, swap markets are now pricing in at least three Fed rate hikes by April of next year, a more aggressive outlook than earlier in the week.

Yields and Dollar Add Pressure

The pressure on non-yielding bullion was compounded by a selloff in the U.S. Treasury market. The five-year U.S. Treasury yield climbed above 5% for the first time since 2007, adding another headwind for gold. Higher yields increase the opportunity cost of holding assets that do not offer a return.

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A firm U.S. dollar, which held near a two-month high after four straight sessions of gains, also weighed on the metal, making it more expensive for holders of other currencies. As of 20:08 ET, key price movements included:

• Spot gold (XAU/USD) rose 0.2% to $4,295.50 an ounce.
• Spot silver (XAG/USD) fell 0.2% to $64.31 an ounce.

Geopolitical and Energy Market Factors

Adding to inflation concerns, oil prices rose after Iranian President Masoud Pezeshkian told the United Nations that Iran would not allow freedom of navigation through the Strait of Hormuz while sanctions remain in place. Higher energy prices can feed into broader inflation, reinforcing the Fed's case for maintaining higher interest rates.

The outlook for Fed policy and energy prices have been major drivers for gold. The metal has fallen roughly 20% since the U.S.-Iran conflict began in late February, according to the report.