Gold Tumbles on Rising Oil Prices as Fed Hike Bets Surge

Gold's performance as an inflation hedge has faltered in recent days due to rising oil prices, which have strengthened bets on a Federal Reserve interest rate hike. Spot gold fell 3% to $4,156.45/oz on September 28, its lowest since August 5, as Brent rebounded after the US rejected Iran's Hormuz proposal.

This move lifted inflation concerns and raised the probability of an October Fed hike to 70.3%, according to CME FedWatch. Higher interest rates make interest-paying bonds more attractive than gold, which is why spot prices are lower by 8.9% compared to the World Gold Council's August 31 close of $4,563/oz.

For an unhedged producer selling at spot, September 28's drop implies about a $128 loss in revenue per ounce at unchanged sales volume. However, low-cost producers retain more margin to absorb this loss and still have exposure to a potential gold rebound if the dollar and real yields fall.