Gold slips ahead of Fed decision as oil, yields keep rate-hike bets elevated

Gold prices declined in the lead-up to the Federal Reserve's policy decision on Wednesday, as elevated oil prices and a surge in Treasury yields exerted downward pressure. Markets forecast a 92% likelihood of a rate hike, while investors also consider the possibility that persistent inflation could maintain higher borrowing costs.

At 21:57 ET (01:57 GMT), gold slipped 0.3% to $4,281.93 per ounce, while gold futures fell 0.3% to $4,321.26. The price of silver (XAG/USD) dipped 0.2% to $63.57, and platinum (XPT/USD) fell 0.5% to $1,770.33. The US Dollar Index increased slightly by 0.1% to 99.73. Gold has dropped two days in a row, with a decline of more than 3% in September, following its surge above $4,700 in late August as traders reassessed monetary policy expectations.

The latest dip is fueled by high oil prices, which have eased after a consecutive two-day rise, and uncertainty surrounding the length of the Saudi Arabia's East-West pipeline shutdown, which has disrupted energy markets. The 10-year U.S. Treasury yield peaked at 5.04%, its highest point since 2007, following a sharp rise on Tuesday.

This surge is part of a broader global bond sell-off caused by surging energy prices and inflation concerns. The 10-year Treasury yield is a critical benchmark for global borrowing costs, and rising yields put pressure on gold, as the precious metal offers no income. Traders now price a 92% chance of a Fed rate hike, with expectations of the central bank raising rates for the first time since 2023.

A hike is not the sole threat to bonds and gold. If the Fed maintains rates or Chair Kevin Warsh hints at postponing further increases, investors might demand higher yields on longer-dated Treasuries to hedge against sustained inflation. Tony Sycamore, senior market analyst at IG, noted that gold closed slightly lower overnight at around $4,293, undermined by rising energy prices, soaring bond yields, a stronger dollar, and risk-averse flows ahead of the Fed's decision.

Sycamore suggests gold must regain its 200-day moving average near $4,539 to indicate the pullback from the $4,697 high is over and the uptrend has resumed. Until then, he expects a deeper decline toward the $4,200 support level. Despite recent weakness, gold remains well above the roughly $4,000 support level seen in July, and many investors still anticipate gold to regain momentum as its longer-term portfolio-hedging appeal returns.