Gold Tumbles on Profit-Taking, But Interest-Rate Outlook Remains Constructive

Gold is testing the $4,300 level as its price dips due to profit-taking following a recent rally fueled by doubts over a September Federal Reserve rate hike. The Fed's interest rate expectations have taken a hit after unimpressive Consumer Price Index (CPI) and Producer Price Index (PPI) data. Benign inflation readings and less-hawkish speeches from Fed policymakers have contributed to the decline in rate-hike bets, with markets now pricing in only a 35% chance of a hike next month.

The interest-rate backdrop remains constructive for bullion, according to TD Securities, which expects the Fed to remain on hold despite upside in energy prices. This is expected to leave gold well-supported in the higher range. The main driver behind gold's correction could be the surge in US 30-year Treasury bond yields and US-Iran geopolitical tensions over the Strait of Hormuz.

US 30-year Treasury yield topped 5.2% on Thursday, hitting its highest level since 2001, following the US government's monthly auction. The United Arab Emirates reported that Iran attacked two of its vessels as they transited the Strait of Hormuz, with a senior Islamic Revolutionary Guards Corps official reaffirming that the Strait is 'under Iran's control and management'. US Treasury Secretary Scott Bessent warned that Washington will apply measures that have 'never been seen' on Iran.