Gold Prices Plummet Amid Rate Hike Bets as Oil Surges

Gold prices dropped by more than 1% on Wednesday as investors became more confident in a potential interest rate hike by the Federal Reserve. The US dollar was strong, and Treasury bonds fell due to expectations of higher rates. Oil prices surged, however, after diplomatic hopes between the US and Iran were dented.

The S&P Global report showed that US business activity accelerated for the fourth consecutive month in September, with both services and manufacturing output rising. This led to increased rate hike expectations, with the probability of a quarter-point increase in October rising to nearly 69% from about 55%. Higher rates typically weigh on non-yielding assets like gold.

Fed Governor Michael Barr said that risks to achieving the central bank's 2% inflation target had increased and more policy adjustments would be needed. JPMorgan analysts echoed this view, saying strong activity and rising costs strengthen the case for additional Fed tightening.