Gold slipped below $4,300 an ounce on Tuesday as surging oil prices stoked inflation fears ahead of the Federal Reserve's policy decision. Markets now price a 92% chance of a rate hike this week, up from 59% a week ago, while Treasury yields and the dollar both firmed against the metal.
Gold dropped on Tuesday, slipping below $4,300 an ounce, as surging oil prices fueled inflation concerns ahead of the Federal Reserve's much-anticipated monetary policy decision this week. At 09:28 ET (13:28 GMT), spot gold had fallen 0.3% to $4,287.81 an ounce, while gold futures declined 0.6% to $4,327.70 an ounce.
The metal sank to a five-week low on Monday, as tensions in the Middle East pushed oil to around four-month peaks. Elevated energy costs raise the risk that central banks, including the Fed, respond to inflation with higher rates.
Fed rate hike bets jump
Markets are now pricing about a 92% probability of a rate increase at the Fed's gathering on Wednesday, according to CME FedWatch, up from 59% a week earlier. Higher borrowing costs tend to weigh on gold because bullion pays no interest, while a firmer dollar can dent the metal's appeal to overseas buyers.
Against this backdrop, benchmark U.S. 10-year Treasury yields have surged above 5%, touching their highest level in nearly two decades, while the dollar has firmed.
Saudi pipeline closure fuels oil price jump
Oil prices moved higher after Saudi Arabia shut its east-west pipeline following attacks by Iran-backed Houthi militants in Yemen. The disruption puts millions of barrels a day at risk, and the route has been key for Saudi oil flows since the effective closure of the Strait of Hormuz earlier this year.
Citing two regional officials, the pipeline will be offline for three to five weeks while damage, including at a pumping station, is repaired, the Associated Press reported; partial use is possible during repairs, though how much oil would flow was not certain. Since late August, an average of 2.6 million to 4 million barrels per day flowed through the pipeline. Traders suggest a prolonged shutdown could disrupt as much as 4% of global oil supply, Reuters reported.
Oil, central banks and yields could all pull in "the same direction: higher inflation and tighter financial conditions" this week, said Lukman Otunuga, Head of Market Research at FXTM. He added that whether policymakers validate or challenge those expectations will likely determine the next major move across currencies, equities and gold.
Source: Investing.com
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