Gold tilts lower as Iran impasse continues to fan rate-hike bets

Gold was set to end to the week lower as elevated energy prices and inflation concerns drove bond yields higher and fuelled expectations the Federal Reserve will need to raise interest rates further.

Bullion edged higher on Friday to near $4 300 an ounce, but was still down around 2% from last Friday. Oil declined after rising by more than 7% over the previous two days, as negotiators were said to be exploring a phased deal that would see Tehran reopen the Strait of Hormuz and Washington lift a port blockade.

Energy costs and expectations of more rate hikes by the Fed have dictated gold’s trajectory in recent weeks. Higher borrowing costs are typically negative for bullion as it pays no interest.

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Losses in the US Treasuries market intensified Thursday amid inflation fears stemming from the mid-week spike in oil prices, as well as concerns about government debt. Yields on 30-year US bonds rose to just shy of 5.5%, the highest in more than two decades. Wall Street is starting to consider that elevated yields might be here to stay.

Higher yields and oil prices and firmer economic data “is a difficult backdrop for gold,” said Christopher Wong, an analyst at Oversea-Chinese Banking Corp. “If yields keep pushing higher, I wouldn’t be surprised to see gold stay under pressure.” The longer-term narrative remains unchanged, but “there probably needs to be a fresh catalyst before the next meaningful leg higher,” he added.

Gold has traded in relatively narrow range either side of $4 300 an ounce in September as traders repeatedly recalibrate the outlook for Fed policy. Despite near-term headwinds, many investors are still betting it will grind higher as it rediscovers its traditional value as a portfolio hedge.

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Spot gold rose 0.2% to $4 283.34 an ounce at 10:56 a.m. in Singapore. Silver was up 0.1% at $63.88 an ounce but on track to end the week more than 3% lower. Platinum edged higher and palladium fell. The Bloomberg Dollar Spot Index, a gauge of the US currency, was steady after five days of gains.

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