Spot gold fell 0.7% on Wednesday as higher oil prices complicated the inflation outlook ahead of the Federal Reserve's rate decision. For bullion, the key question is whether Treasury yields rise on inflation expectations or on expected real interest rates.
Spot gold fell 0.7% to $4,030.20 an ounce at 06:02 GMT, according to Reuters' October 28 report. Renewed supply concerns pushed oil higher the same day.
December U.S. gold futures declined 0.8% to $4,043. The retreat followed a gain of approximately 1% in the previous session.
Oil rebounds on Saudi refinery reports
Oil moved the other way. Brent crude futures gained 1.4% to $115.47 a barrel at 04:35 GMT, while West Texas Intermediate increased 1.4% to $101.33, Reuters reported.
The rebound followed renewed concerns about Saudi Arabian energy infrastructure after Yemen's Houthi movement claimed a missile strike on a major refinery. Saudi authorities had not immediately confirmed the reported strike.
Yields and the dollar send mixed signals
Gold does not generate interest income, so higher inflation-adjusted returns on government bonds raise the cost of holding it. That is why rising oil prices do not automatically lift gold: the outcome depends partly on whether inflation expectations increase faster than nominal yields.
The U.S. 2-year Treasury yield stood at 4.774%, up 3.73 basis points in a later Reuters report. The U.S. Dollar Index was at 102.37, broadly unchanged in that report. These figures support a potential interest-rate channel, but they do not establish that oil prices caused gold's decline.
What the Fed could change
Markets were broadly expecting the Fed to leave rates unchanged on October 28. At its September 16 meeting, the Federal Open Market Committee raised its target range by 25 basis points to 3.75%–4.00%.
An unchanged rate would not necessarily relieve bullion. If the Fed stresses persistent inflation pressures, traders could revise expectations for future rate increases, which would support Treasury yields.
Another test arrives Thursday, October 29, when the Bureau of Economic Analysis is scheduled to publish September Personal Consumption Expenditures price index data at 8:30 a.m. Eastern Time.
Source: Investing.com
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