Gold Holds Drop as Higher Oil and Hot US Data Fan Rate-Hike Bets

Gold prices remained flat on Thursday following a substantial decline the previous day, as higher oil prices and robust U.S. economic data bolstered expectations for additional Federal Reserve interest rate hikes. By 20:08 ET (00:08 GMT), XAU/USD was up 0.2% at $4,295.50 per ounce, while XAG/USD fell 0.2% to $64.31. The U.S. dollar index remained unchanged after climbing for four consecutive sessions to a near two-month high.

Higher Treasury yields and a strong dollar further pressured gold. Gold's sensitivity to Fed policy outlook remains significant as investors determine if rising energy prices will sustain inflation at levels requiring further rate increases. Higher rates typically have a negative impact on gold due to its lack of interest. Oil prices surged after Iranian President Masoud Pezeshkian addressed the United Nations, stating Iran would not permit freedom of navigation through the Strait of Hormuz as long as sanctions and a U.S. blockade persist.

Pezeshkian emphasized Iran's openness to negotiations but refusal to yield to threats, and that Tehran does not aim to develop nuclear weapons but will not relinquish its right to develop nuclear technology for economic reasons. This occurred the day after President Donald Trump reported "very good" discussions with Iranian delegates during the United Nations summit.

Gold has depreciated approximately 20% since the U.S.-Iran conflict commenced in late February, with energy prices and the Fed outlook being primary factors. U.S. Treasury markets faced renewed strain due to stronger-than-anticipated economic data and a subpar debt auction, reflecting growing expectations of persistent inflation and elevated yields across most maturities, with the five-year Treasury yield surpassing 5% for the first time since 2007.

The expansion of U.S. business activity reached its highest pace in over five years. Fed Governor Michael Barr indicated further rate increases may be necessary to return inflation to the central bank's 2% objective. Similar sentiments were echoed by other policymakers warning of persistent price pressures. Swap markets now forecast at least three Fed rate hikes by next April, up from earlier this week.

Despite short-term pressures, gold remains supported by longer-term demand factors. Currently, stronger economic activity, higher yields, rising oil prices, and a firmer dollar are keeping the metal under pressure.