Fed Rate Hike and Strong Dollar Weigh on Gold Prices

Gold prices have faced renewed selling pressure after the US Federal Reserve's latest interest rate hike. On September 16, the Fed increased its benchmark rate by 25 basis points to 3.75-4.00 percent, marking its first rate increase in over three years. This move, along with rising Treasury yields and a stronger US dollar, has reduced gold's appeal as a non-yielding asset.

The benchmark 10-year US Treasury yield recently reached 5.25 percent, its highest level since 2007, while the Dollar Index climbed above 101. Higher yields and a stronger dollar have offset some of the safe-haven support gold typically receives from geopolitical uncertainty. A stronger dollar makes gold more expensive for international buyers, while higher bond yields increase the opportunity cost of holding the precious metal.

Despite elevated geopolitical tensions in West Asia, gold's response has been muted. The conflict has kept crude oil prices high, reinforcing inflation expectations and potentially extending the Fed's restrictive monetary policy. While geopolitical uncertainty usually boosts gold demand, the current environment favors higher yields and a stronger dollar.

Central-bank demand remains a key support for gold. During Q2 2026, central banks purchased a net 289 tonnes of gold, bringing total purchases for the first half of the year to 345 tonnes. The World Gold Council expects central banks to continue accumulating gold, although annual purchases may fall below 2025 levels.

Looking ahead, gold is likely to remain range-bound, caught between opposing forces. Elevated Treasury yields and a strong dollar could limit significant upside, while geopolitical uncertainty and central-bank demand may prevent a deep correction. The World Gold Council anticipates a mild positive bias towards year-end, with US Treasury yields and the dollar remaining key triggers for gold's next major move.