Gold Crumbles as Rate Hike Odds Surge, Dollar Strengthens
Gold prices have dropped to their lowest level in seven weeks, reaching $4,130.58 an ounce on Tuesday. This decline is largely due to the increasing probability of another Federal Reserve interest rate hike in October, which has risen to around 72.5%. The US 10-year Treasury yield has also climbed to a high of 5.27%, making gold's non-yielding status a significant headwind.
The strengthening dollar and rising yields have led Saxo Bank analysts to recommend buying the US Dollar Index, citing it as a direct headwind for gold. However, a clear dovish pivot from US data or Fed messaging could spark a sustained yield selloff and dollar reversal.
Gold's longer-term demand picture remains supportive, with global gold-backed ETFs attracting $18 billion in August, the second-largest monthly inflow on record. However, oil and Middle East diplomacy remain swing factors that can impact gold prices.