Dollar Strength Weighs on Gold as Fed Rate Hike Bets Reach New High

Gold prices fell to a three-week low on Wednesday, weighed down by a stronger dollar and rising Treasury yields that increased expectations of a Federal Reserve rate hike.

The latest losses extended gold's decline for a fourth consecutive session, following a nearly 10% gain in August, its strongest monthly performance since January. The rally accelerated after the Treasury increased bond buybacks and revived the debasement trade, which reflects concerns about rising sovereign debt and potential currency depreciation.

The current pressure on gold comes from higher oil prices, rising Treasury yields, and a firmer dollar, all of which reinforce expectations that the Fed may need to keep rates higher for longer. Markets are now pricing close to a 70% probability of a Fed rate hike at the September 15-16 meeting.

Higher oil prices matter for gold because energy costs can feed directly into inflation, making it more likely that the Federal Reserve will increase interest rates. The latest escalation in US-Iran tensions has pushed oil prices higher, with West Texas Intermediate crude edging lower to $94 a barrel and Brent slipping below $90.