Gold steady as traders weigh lower oil against higher yields

Gold steadied, after advancing on Tuesday, as traders weighed a decline in oil prices that eased concerns over energy-led inflation against elevated Treasury yields.

Bullion traded around $4 195 an ounce, after gaining 1.6% the day before. Oil held a drop on signs that supply from the Middle East has risen to near pre-war levels as Saudi Arabia boosted flows through a key pipeline, countering the stalemate over the Strait of Hormuz that pushed fuel prices higher earlier in the week. Even so, Brent crude is up around 70% this year as the conflict nears its eighth month.

Pressure on gold remains from other quarters. The yield on the US Treasury’s longest bond rose for a sixth day on Tuesday to the highest since 2002 on concerns that persistently elevated energy costs could prompt further rate hikes. Higher yields typically weigh on bullion, which pays no interest.

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Fed officials have warned that tighter monetary policy is still needed even after they hiked interest rates mid-month for the first time since 2023. New York Fed President John Williams said Tuesday that one more rise “late this year” may be appropriate, prompting investors to dial back the probability of an increase at its next meeting in late October — just before US midterm elections — to below 50% from 70%.

Williams said the Middle East conflict and the artificial intelligence build-out remain the main drivers of higher inflation, while three other Fed officials made reference to raising interest rates in separate speaking engagements on the day.

Gold was on track to end September down more than 5% as energy cost pressures weigh on prices more broadly. The release of US personal consumption expenditure data later Wednesday — the Fed’s preferred inflation gauge — as well as non-farm payrolls data on Friday are the next economic indicators that will be closely watched for clues on the path for rates.

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Even so, the holdings of bullion-backed exchange-traded funds have continued to increase, adding around 63 tons this month. Long-term investors, along with central bank purchases, are offsetting some of the bearish macroeconomic factors, leaving gold “without a clear directional catalyst,” analysts from Macquarie Group said in a note.

Spot gold rose 0.3% to $4 195.23 an ounce at 3:18 p.m. in Singapore. Silver fell 0.2% to $61.38 an ounce. Platinum and palladium advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, was down 0.2%.

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