Gold Prices Plummet as Fed Hikes Interest Rates Amid High Oil Costs

The recent hike in interest rates by the Federal Reserve has led to a decline in gold prices. Spot gold traded at $4,291 an ounce on September 25, down about 2% for the week, after the Fed's first rate hike in three years and 71% CME FedWatch odds of another hike on October 28.

The US 10-year Treasury yield reached 5.12% on September 23, its highest since 2007, making it more expensive to hold non-yielding gold. This is particularly challenging for gold miners with high costs, as a further 10% gold fall would narrow their average producer margin by about 17% and 90th-percentile margin by about 24%, according to World Gold Council data.

Nitesh Shah, Commodity Strategist at WisdomTree, noted that rate-hike fears could persist until the Strait of Hormuz disruption is resolved. The disruption has kept Brent above $100 a barrel, adding to US fuel costs and inflation pressure.