Gold steadies after 1.6% gain as oil drop offsets elevated Treasury yields

Gold prices stabilized on Wednesday following a 1.6% rise the previous day, as falling oil prices alleviated some concerns about energy-inflated inflation, despite higher U.S. Treasury yields continuing to put pressure on the precious metal. At 20:36 ET (00:36 GMT), XAU/USD held steady at $4,180.54 an ounce, while Gold Futures increased 0.8% to $4,212.01.

XAG/USD declined 0.2% to $61.37, and XPT/USD rose 0.1% to $1,715.51. The U.S. Dollar Index rose 0.03% to 101.41. Oil prices continued to decline as indications emerged that Middle East supply was recovering, with Saudi Arabia boosting flows through a key pipeline following repairs. However, Brent crude remains roughly 70% higher this year due to the ongoing conflict nearing its eighth month.

Although lower oil prices have eased some inflation concerns, uncertainty surrounding energy supplies remains a crucial factor for markets evaluating the Federal Reserve's upcoming decisions. The focus will shift to Wednesday's personal consumption expenditures inflation data, the Federal Reserve's preferred inflation indicator, followed by Friday's nonfarm payrolls report, providing further clues on the direction of interest rates.

Gold's bearish momentum persists due to bond market pressure. The yield on the longest-dated U.S. Treasury surged for a sixth consecutive day on Tuesday to its highest level since 2002, reflecting investors' deliberations over whether sustained high energy costs might compel the Fed to raise interest rates further. Higher yields typically exert downward pressure on gold, as the metal does not generate interest income.

Federal Reserve officials have maintained that monetary policy may need to remain restrictive even after the central bank raised rates in September for the first time since 2023. New York Fed President John Williams suggested on Tuesday that an additional rate hike later this year could be warranted. His remarks prompted traders to lower the likelihood of a rate increase at the Fed's October meeting, which precedes the U.S. midterm elections, to approximately 50% from 70%.

Williams cited the Middle East conflict and the rapid growth of artificial intelligence infrastructure as pivotal sources of inflationary pressures. Three other Fed officials also addressed the potential for higher interest rates during separate appearances on Tuesday. Gold is projected to conclude September almost 6% lower, with rising energy costs adding to broader price pressures.