Gold prices moved slightly higher on Tuesday after suffering a sharp 4% decline in the previous session. However, bullion remained close to a seven-week low as rising Treasury yields and expectations for further Federal Reserve rate hikes continued to weigh on the market.
Tensions between the United States and Iran over the Strait of Hormuz also kept oil prices elevated, adding to inflation concerns and reinforcing expectations that US interest rates could remain higher for longer.
Spot gold rose around 0.4% to $4,131.10 an ounce, while gold futures slipped 0.2% to $4,162.32.
Silver fell 0.3% to $60.45, while platinum declined around 1% to $1,700.17. Meanwhile, the US Dollar Index gained 0.1% to 101.27.
Strait of Hormuz Tensions Keep Oil Prices Elevated
Oil prices extended their gains as Iran maintained its conditions for reopening the Strait of Hormuz.
Iranian officials have reportedly become increasingly pessimistic about reaching an agreement with Washington before the US midterm elections in November.
That followed President Donald Trump’s rejection of Tehran’s latest proposal to reopen the key shipping route within seven days.
The US-Iran conflict has now entered its eighth month, continuing to disrupt global energy markets and increase concerns about inflation.
Treasury Yields Add Pressure on Gold
Higher oil prices also contributed to renewed selling in the US Treasury market.
The benchmark 10-year Treasury yield climbed to a fresh 19-year high on Monday.
Rising bond yields are generally negative for gold because the precious metal does not pay interest. When Treasury yields rise, interest-bearing assets can become more attractive compared with bullion.
The Treasury selloff has intensified since the US-Iran conflict began in late February, particularly over the past month.
Higher yields also increase borrowing costs across the economy, adding another source of pressure for businesses, households and financial markets.
Treasury Buybacks Fail to Stop Yield Surge
The Trump administration has attempted to ease pressure on long-term borrowing costs through increased Treasury buybacks.
However, yields have continued to climb.
Cleveland Federal Reserve President Beth Hammack said the increase in long-term yields reflects several factors.
These include stronger expectations for economic growth, concerns about US government debt and the possibility of additional Federal Reserve interest rate hikes.
Gold Falls Around 7% in September
Gold has now lost approximately 7% during September despite climbing to around $4,510 an ounce earlier in the month.
The decline followed the Federal Reserve’s first interest rate increase since 2023.
Policymakers have also kept the door open to additional rate hikes as they continue to battle persistent inflation.
Markets currently see roughly a 70% probability of another rate increase in October.
Rising Yields Trigger Fresh Gold Selloff
ANZ analysts said gold had fallen toward $4,130 an ounce as rising US Treasury yields triggered renewed selling.
Higher energy prices have also strengthened expectations that the Federal Reserve may need to tighten monetary policy again in the near term.
This combination creates a difficult environment for gold.
Higher yields increase the opportunity cost of holding bullion, while persistent inflation can force central banks to keep monetary policy restrictive.
AI Investment Could Add to Inflation Pressure
Federal Reserve Governor Lisa Cook also warned that productivity improvements driven by artificial intelligence may not be enough to offset short-term inflation pressures.
Cook said heavy investment in data centres was increasing competition for key resources.
These include energy, construction workers and other inputs needed to expand AI infrastructure.
As a result, rapid investment in the technology sector could add to existing cost pressures in parts of the US economy.
Gold Outlook Depends on US Inflation and Jobs Data
According to ANZ, the near-term macroeconomic environment remains challenging for gold.
Rising Treasury yields, high energy prices and persistent inflation risks continue to weigh on the precious metal.
Investors will now turn their attention to upcoming US economic data.
The personal consumption expenditures price index is due on Wednesday and will provide an important update on inflation.
Markets will then focus on Friday’s nonfarm payrolls report for further clues about the strength of the US labour market and the Federal Reserve’s next move.
For gold, expectations surrounding interest rates and Treasury yields are likely to remain the most important drivers in the near term.
