Gold steadies as stronger dollar and yields weigh on rate path

Gold steadied on October 5 as the US dollar and Treasury yields rose, impacting the Federal Reserve's outlook for interest rates. The greenback was near its highest level in two years, after the euro fell due to a French bond sell-off and concerns over potential regional contagion. A stronger dollar typically hinders commodities priced in US dollars.

The US Treasury market saw renewed pressure, with longer-dated yields hitting multi-decade highs amid extended bond declines. Inflationary concerns were highlighted by an Institute for Supply Management report showing a significant rise in US services cost pressures last month. Despite these inflationary signals, Federal Reserve officials have been signaling a lower probability of an imminent rate hike, with traders pricing in a roughly one-in-four chance of a rate increase at the October meeting.

Minutes from the Fed's September meeting, where rates were raised for the first time in three years, are expected on Wednesday. Higher interest rates typically have a negative effect on gold compared to yield-bearing assets such as Treasuries. In August, gold fell over 6% due to worries about energy-driven inflation, potential higher US rates, and the strengthening US dollar.

It has declined more than 20% since the start of the US-Iran conflict in late February. Gold was trading around US$4,139.06 per ounce in Singapore on Tuesday, while silver held steady at US$61.05 an ounce. Platinum dipped slightly, while palladium saw a marginal increase. The Bloomberg Dollar Spot Index, a gauge of the US currency, remained stable after four weeks of upward movement.