Gold fell Monday as a stronger dollar and near-certain Fed rate hike expectations weighed on the metal. Spot prices dropped 1.2% to $4,298.80/oz while traders now price a 92.5% chance of a quarter-point hike this week, which would be the first since 2023.
Gold slipped Monday as the dollar climbed to its highest level in almost two weeks, with markets bracing for the Federal Reserve to raise interest rates for the first time in over three years. Spot gold dipped 1.2% to $4,298.80/oz, while gold futures dropped 1.6% to $4,340.00/oz.
Fed hike odds near certainty
Traders now see a 92.5% chance of a rate hike at Wednesday's FOMC meeting, up from 87.3% a day earlier and 59.4% a week ago, according to the CME FedWatch tool. Higher rates weigh on non-yielding gold and tend to lift the dollar, making bullion pricier for foreign buyers.
Last week's consumer and producer inflation data tipped the scales toward tightening, coming after a blockbuster August nonfarm payrolls report. A rout in the bond market has pushed borrowing costs higher too — the U.S. 10-year yield briefly touched 5% on Monday, its highest level since October 2023.
Oil surge adds to the pressure
A rally in crude prices has also fed hike expectations. Benchmarks have surged nearly 20% over the past two weeks amid renewed U.S.-Iran military strikes and a widening conflict between Saudi Arabia and Iran-backed Houthis in Yemen. Brent crude settled 1.5% higher at $106.23 a barrel on Monday, though gains eased on encouraging signs of U.S.-Iran diplomacy.
Analysts flag technical risk
Gold has traded in a narrow band near $4,400 since rebounding from a floor near $4,000 in July, as investors keep repricing Fed policy. ANZ said escalating Middle East tensions and higher energy prices could drive inflation higher, forecasting three 25-basis-point Fed hikes by March 2027, but added that because those pressures stem from geopolitical disruption, they should preserve gold's safe-haven appeal.
According to Trade Nation: "a retest of support around $4,200 can't be ruled out", senior market analyst David Morrison said, pointing to a possible head-and-shoulders pattern and bearish momentum on gold's daily chart.
Source: Investing.com
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