Gold Stabilizes Near Seven-Week Low as Surging Yields Boost Fed Hike Bets

Gold prices stabilized near a seven-week low on Tuesday, following a sharp 4% plunge in the previous session as rising Treasury yields and heightened expectations for another Federal Reserve rate hike continued to pressure the non-yielding asset.

At 21:11 ET, spot gold (XAU/USD) was little changed at $4,118.54 an ounce, while gold futures hovered around $4,150.26, according to Investing.com data. The metal has fallen about 7% in September despite briefly touching $4,510 earlier in the month.

Yields and Geopolitics Pressure Gold

The primary driver for gold's decline is the sharp rise in U.S. Treasury yields. The benchmark 10-year Treasury yield climbed to a fresh 19-year high, increasing the opportunity cost of holding bullion, which does not generate interest income.

According to analysts at ANZ, rising U.S. Treasury yields triggered the recent selloff. This move in the bond market is partly fueled by elevated energy prices, which stem from an ongoing standoff between the U.S. and Iran over the Strait of Hormuz. Higher oil prices are reinforcing expectations of persistent inflation, strengthening the case for further Fed tightening.

Hawkish Fed Outlook Dominates

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Investor sentiment is firmly focused on the Federal Reserve's monetary policy path. The market is currently pricing in a roughly 70% probability of another interest rate increase in October, following the central bank's first hike since 2023.

Recent commentary from Fed officials has supported this hawkish outlook. Cleveland Fed President Beth Hammack attributed the increase in long-term yields to a stronger growth outlook and expectations for additional rate increases. Separately, Fed Governor Lisa Cook said Monday that near-term inflation pressures may not be sufficiently offset by productivity gains from artificial intelligence.

Key Economic Data Ahead

Market participants are now looking ahead to crucial U.S. economic data for further insight into the central bank's policy direction. The upcoming Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, and Friday's nonfarm payrolls report will be closely watched for fresh clues on the path of interest rates.