Gold holds near $4,140 as dollar, yields offset lower Fed hike expectations

Gold prices stayed relatively unchanged on Tuesday as the U.S. dollar and Treasury yields climbed, dimming hopes of another Federal Reserve rate increase. The XAU/USD rate slipped 0.1% to $4,138.09 per ounce, while Gold Futures gained 0.2% to $4,165.15. The XAG/USD rate dropped 0.1% to $60.998, and XPT/USD fell 0.2% to $1,721.37.

The U.S. Dollar Index remained steady at 102.17. Gold's recovery unfolded as investors evaluated mounting fiscal pressures globally and their impact on monetary policy. In Europe, political instability and fiscal issues in France boosted demand for the dollar. A stronger dollar typically makes gold pricier for foreign buyers. France's fiscal woes, along with surging European bond yields, further pressured the euro, which hit a 17-month low, strengthening the greenback to its year's highest level.

Higher U.S. bond yields also made gold less appealing as it pays no interest. The latest report from the U.S. Institute for Supply Management showed rising pressure on service sector costs, with price pressures suggesting further Fed rate hikes were still possible. Despite these risks, the likelihood of an immediate Fed increase has dropped since last week's weaker-than-expected U.S. jobs report.

Fed officials' pushback against immediate hikes has given some support to gold, even as bond yields rise. ANZ analysts noted gold's bounce back from last week's steep decline as investors reassess global fiscal pressures and the reduced chance of an October rate hike, now at around 20% compared to about 70% a week earlier.