Gold slipped Tuesday as the dollar, Treasury yields, and oil prices all climbed a day ahead of a Federal Reserve decision widely anticipated to raise rates. Traders priced a rate hike at 94.5%, up from 59% a week earlier, while oil jumped on fresh supply disruptions in Libya and Saudi Arabia.
Gold dipped on Tuesday as a stronger dollar weighed on the metal a day before what could be one of the most consequential Fed rate decisions in recent years. Spot gold ticked down 0.1% to settle at $4,294.14/oz, while gold futures slipped 0.4% to settle at $4,333.95/oz. The central bank is widely anticipated to tighten policy for the first time since July 2023.
Yields hit multi-year highs before Fed
According to the CME FedWatch tool, the odds of a 25 basis point hike on Wednesday stand at 94.5%, up from 59% a week ago. Higher rates tend to weigh on non-yielding assets such as gold, and they also tend to strengthen the dollar, which can make bullion more expensive for foreign buyers.
The rise in rate hike expectations has been driven by a rout in the U.S. bond market, inflationary concerns from spiking oil prices, recent labor market and inflation data, and increasingly hawkish commentary from Fed policymakers. As a result, the U.S. 10-year yield added 4.3 basis points to close at 5.004% on Tuesday, its highest level since April 2007. The 30-year yield took out a fresh high of over 24 years.
The bond sell-off has also been sparked by concerns over billions of dollars being poured into artificial intelligence infrastructure and ballooning U.S. fiscal debt. It now remains to be seen whether the Fed will deliver its first rate hike in over three years, against a political backdrop of President Donald Trump pressuring Fed Chair Kevin Warsh to cut rates ahead of November's midterm elections.
Oil jumps on Libya and Saudi disruptions
Oil prices had pared some of their gains on Monday following encouraging signs on U.S.-Iran diplomacy, but crude resumed a march higher on Tuesday. Brent crude futures climbed 2.7% to settle at $108.51 a barrel, while U.S. WTI crude advanced 4.1% to settle at $105.52 a barrel.
Supply disruptions remain at the top of traders' minds. In Libya, members of the security force protecting the country's oil sector closed a valve on the Hamada-Zawiya crude-loading pipeline, and the National Oil Corporation said operations had been completely halted at three oilfields and that it could declare force majeure. That update added to jitters following the shutdown of Saudi Arabia's East-West Pipeline due to attacks by Iran-backed Houthis in Yemen, and reports that oil loadings at Saudi Arabia's Red Sea port of Yanbu had been suspended.
Source: Investing.com
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