Gold steadies near 3-mth low as elevated oil prices weigh; Fed meet eyed

Gold prices stabilized near a three-month low on Monday as heightened oil prices weighed on the market, ahead of the Federal Reserve's upcoming meeting. The spot price of gold hovered near $3,995.42 an ounce, while U.S. Gold Futures remained unchanged at $4,007.45. This marked the first time the metal had dipped below the psychologically significant $4,000 mark since mid-July.

The recent decline in gold prices has been attributed to a sharp increase in oil prices, sparked by ongoing tensions in the Middle East. Brent crude oil prices surged 6.2% last week, reaching their highest weekly close since mid-2022 before slipping on Monday due to diplomatic efforts to ease regional tensions. The rise in energy costs poses the risk of prolonging inflationary pressures and constraining central banks' ability to ease monetary policy.

Although gold is often seen as a hedge against inflation and geopolitical uncertainty, higher interest rates increase the opportunity cost of holding the non-yielding metal, making interest-bearing assets more appealing. Investors are generally anticipating the Federal Reserve to maintain interest rates steady during its meeting on October 27-28, but attention is now turning to the central bank's outlook for December.

According to CME FedWatch data, there is a 78% probability of a rate hike in December. Recent U.S. inflation data from consumer and producer surveys has exceeded expectations, fueling concerns that price pressures might persist despite economic growth remaining robust. The U.S. personal consumption expenditures price index, the Federal Reserve's preferred inflation gauge, is scheduled for release on October 29.

This data will offer further insight into the inflation outlook. The 10-year U.S. Treasury yield remains close to 5%, exerting pressure on non-yielding assets like gold. Alongside gold, silver prices remained relatively stable at $53.9385 per ounce, while platinum declined slightly by 0.5% to $1,544.97 per ounce.