Gold prices moved lower on Tuesday and slipped below $4,300 per ounce as rising oil prices increased inflation concerns ahead of the Federal Reserve’s policy decision.
At 09:28 ET, spot gold was down 0.3% at $4,287.81 per ounce, while gold futures fell 0.6% to $4,327.70.
Gold Hits Five-Week Low
Gold had already fallen to a five-week low on Monday as tensions in the Middle East pushed oil prices toward four-month highs.
Higher energy costs have raised concerns that inflation could remain elevated for longer.
As a result, investors are increasingly expecting central banks, including the Federal Reserve, to keep monetary policy tighter.
Fed Rate Hike Odds Rise to 92%
Markets are now pricing in roughly a 92% probability of a Federal Reserve rate hike at the end of Wednesday’s meeting.
That is a sharp increase from around 59% one week earlier.
Stronger expectations for higher interest rates have weighed on gold because the metal does not generate interest income.
Treasury Yields and Dollar Pressure Gold
US Treasury yields have also climbed sharply.
The benchmark 10-year Treasury yield moved above 5%, reaching its highest level in nearly two decades.
At the same time, the US dollar strengthened.
Higher bond yields can make interest-bearing assets more attractive compared with gold. A stronger dollar can also reduce demand from overseas buyers by making gold more expensive in other currencies.
Saudi Pipeline Shutdown Pushes Oil Higher
Oil prices rose further after Saudi Arabia shut down its east-west pipeline following attacks linked to Iran-backed Houthi militants in Yemen.
The disruption has placed millions of barrels of daily oil supply at risk.
The pipeline has become an important export route following the effective closure of the Strait of Hormuz earlier this year.
Pipeline Could Remain Offline for Weeks
According to regional officials cited by The Associated Press, the 1,200-kilometer pipeline could remain offline for three to five weeks while repairs are carried out.
Damage reportedly affected a critical pumping station.
The pipeline could operate partially during the repair period, although the amount of oil that may continue flowing remains uncertain.
Since late August, the route had been carrying roughly 2.6 million to 4 million barrels per day.
A prolonged shutdown could potentially affect as much as 4% of global oil supply, increasing pressure on energy markets.
Higher Oil Prices Add to Inflation Risks
The combination of higher oil prices, rising Treasury yields and tighter monetary policy expectations is creating a challenging environment for gold.
Markets are now focused on whether central banks confirm expectations for higher rates or push back against them.
The Federal Reserve’s decision could therefore play a major role in determining the next move in gold, currencies and broader financial markets.
