Gold Rally Hits New Wall as Higher Yields and Hawkish Fed Pressure Prices

The gold market is facing new challenges as its August rally runs into higher Treasury yields and a more hawkish Federal Reserve. Gold futures fell to a nearly two-week low on Monday, with losses deepening on Tuesday despite escalating Middle East tensions.

Front-month Comex gold for September delivery dropped 1% to $4,431.10 an ounce on Monday, its lowest settlement since August 18. Silver prices also declined, falling 1.1% to $66.221 an ounce. The pullback came after a strong August, during which gold rose 9.4% and silver surged 15%.

The pressure on the gold market intensified with rising oil prices and higher Treasury yields. Brent crude settled above $90 a barrel on Monday, while investors reassessed their outlook for monetary policy following Fed Chairman Kevin Warsh's comments at Jackson Hole. Markets subsequently lifted the probability of a September rate hike to roughly two-thirds, compared with 36% before his remarks.

The immediate test for gold will be the upcoming U.S. labor data, including the August jobs report on September 4, producer-price data on September 10, and CPI on September 11. Weak employment numbers could cool rate-hike expectations and relieve pressure on gold, while strong jobs or stubborn inflation could drive yields and the dollar higher.