Gold Prices Slump to Two-Month Low on Fed Hike Bets

Spot gold dropped to a two-month low as traders priced in further Federal Reserve tightening and the dollar rose, reducing the appeal of the non-yielding asset. The price fell 2.3% to $4,066 per ounce. Market participants now see an 84% probability of a rate hike in December, according to CME's FedWatch tool, even as they expect the Fed to hold steady later this month. Higher interest rates diminish gold's attractiveness. The US dollar index rose 0.5%, making gold more expensive for holders of other currencies.

UBS analyst Giovanni Staunovo identified higher oil prices and growing expectations for additional U.S. rate hikes as the main drivers behind gold's recent weakness. Oil prices themselves increased due to ongoing Middle East supply risks and a storm approaching US oil-producing regions.

Treasury Yields Reinforce Higher-for-Longer Narrative

The 10-year and 30-year Treasury yields traded near multi-decade highs. The benchmark 10-year Treasury yield moved back above 5.2%, trading around 5.282% to mark an over-two-decade high. It had earlier reached 5.35%, the highest level since 2002. The 30-year Treasury bond yield was about 5.655%, just below a 24-year high.

Investors are seeking higher yields on global bonds amid concerns about persistent inflation, government spending, and corporate borrowing for AI projects. France's fiscal problems are also raising fears of a confrontation between the European Central Bank and markets similar to the euro-area debt crisis over a decade ago.

Fed Officials Signal Caution on Inflation Path

Federal Reserve presidents emphasized that future rate decisions depend on inflation trends, with some suggesting more hikes may be needed. Kansas City Fed President Jeff Schmid said further interest rate increases may be needed to curb inflation. San Francisco Fed President Mary Daly stated the future policy path depends on whether inflationary pressures continue.

A Federal Reserve Bank of New York survey showed short-term US inflation expectations rose last month and labor-market sentiment improved. This follows a 25-basis-point rate hike last month, the first since 2023.

Broader Precious Metals Weaken Amid Risk-Off Sentiment

Silver, platinum, and palladium all posted notable declines, while gold-mining stocks fell in premarket trading.

Major mining equities also sold off. Newmont Corp. shares fell 4.6% in premarket trading, while Barrick Gold shares dropped 2.4%. Pan American Silver Corp. was down 4.7%, Hecla Mining slumped more than 5.4%, and First Majestic stock tanked 6%.

Analysts See Near-Term Downside But Potential Year-End Recovery

Despite short-term bearish pressure from yields and the dollar, strategists note official gold demand as a key support and see a possible rebound toward year-end. Peter Grant, vice president and senior metals strategist at Zaner Metals, said the market is still pricing in at least one rate hike before year end, a message that rates will continue to be higher for longer, which keeps yields and the dollar underpinned.

Grant added that official gold demand is the main supporting factor. He suggested gold could see one more test to the downside, perhaps as low as $4,000, and then a recovery into year-end with potential to reach $4,400. Ole Hansen, Head of Commodity Strategy for Saxo Bank, warned that rising credit stress could trigger further selling if investors turn to liquid assets such as gold to raise cash. He said gold's resilience is facing its toughest test yet, noting that ETF demand remains resilient but tighter financial conditions could create another source of pressure.

Investors await the FOMC minutes release later in the day for more Fed policy insight.