Gold trades near seven-week low as rate-hike pressure mounts

Gold prices dropped near a seven-week low on Monday as concerns over a potential US rate hike grew. The precious metal traded around US$4,120 an ounce after plummeting 4% on Monday to its lowest level in seven weeks. This decline was driven by ongoing tensions between the US and Iran, which have kept energy costs high and put pressure on the Federal Reserve to raise interest rates.

Iranian officials privately expressed doubts about resolving hostilities with Washington before the US midterm elections in November, following President Donald Trump's rejection of their latest proposal to reopen the Strait of Hormuz. The sell-off in US bonds intensified, pushing Treasury yields to a 19-year high and challenging the appeal of gold as a non-yielding asset.

The Trump administration attempted to mitigate these effects through increased buybacks of longer-dated bonds, but rates continued to rise. Gold's value fell by around 7% in September, despite briefly reaching US$4,510 an ounce at the start of the month. The Federal Reserve's first rate increase since 2023, aimed at curbing US inflation, raised expectations for further hikes.

With high energy prices and a 70% chance of a rate hike in October, investors face significant pressure for gold's near-term recovery. Analysts from China Zheshang Bank Co Ltd noted that accumulated trading volume near previous highs could make a breakout difficult. Fed Governor Lisa Cook warned that AI-driven productivity gains may not be sufficient to offset short-term price pressures, potentially leading to higher inflation across the economy.

Data on personal consumption expenditures and non-farm payrolls will provide further insights into the Fed's future rate decisions. Spot gold increased by 0.1% to US$4,117.60 an ounce in Singapore, while silver remained stable, platinum declined, and palladium rose slightly. The Bloomberg Dollar Spot Index remained steady, after climbing 0.3% the previous day to a 19-year high.