Gold prices dropped sharply on Wednesday, falling 2.3% to $4,066 per ounce, a two-month low. The decline was driven by rising Treasury yields, which reached multi-decade highs, and a stronger US dollar. The 10-year Treasury yield climbed to 5.282%, briefly touching 5.35%, its highest level since 2002. Meanwhile, the 30-year Treasury bond yield neared a 24-year high at 5.655%. Investors are demanding higher compensation to hold global bonds amid persistent inflation concerns and growing government spending.
The US dollar index rose 0.5%, making gold more expensive for foreign investors. The slide in gold prices came as oil prices increased due to Middle East supply risks and a storm approaching US oil-producing regions. Investors are also watching for insights into the Federal Reserve’s policy outlook, particularly after last month’s 25-basis-point rate hike, the first increase since 2023.
Markets currently expect the Fed to keep interest rates steady later this month but see an 84% chance of a December rate hike. Kansas City Fed President Jeff Schmid and San Francisco Fed President Mary Daly have hinted that further rate hikes may be necessary if inflationary pressures persist. Higher interest rates typically make gold, which does not yield interest, less attractive to investors.
The release of the FOMC minutes later in the day is anticipated to provide additional clarity on the Fed’s future policy moves. Meanwhile, France’s fiscal challenges are adding to market unease, potentially drawing the European Central Bank into a tense situation similar to the euro area’s debt crisis over a decade ago.