Gold Falls Below Key Support as Treasury Yields Rise Above 5%

Rising US bond yields are challenging gold's traditional appeal as investors weigh the opportunity cost of holding a non-yielding asset against 10-year Treasury returns above 5%. Gold falls to $4,136, a seven-week low and 26% below its Jan. 29 record, as Treasury yields pressure demand.

The odds of another Fed rate hike at the Oct. 27-28 FOMC meeting rise to 72%, with the 10-year Treasury yield reaching 5.28%, its highest level since 2007. Higher oil prices are feeding inflation expectations, reinforcing the view that the Federal Open Market Committee is more likely to keep raising rates after its quarter-point increase on Sept. 16.

Cleveland Fed President Beth Hammack warns against letting persistent inflation condition consumers to accept higher prices as normal. With gold paying no income, every dollar allocated to bullion carries a greater opportunity cost when government debt offers more than 5%, while 10-year Treasury Inflation-Protected Securities yield 2.88% on top of inflation adjustment.