Oil Price Surge Pummels Gold to Five-Week Low Ahead of Fed Rate Decision
Gold prices have declined to a five-week low as oil prices surge and inflation concerns rise. Spot gold hovered near $4,300 per ounce on Tuesday, with an intraday low marking a fresh trough since August 7. The sharp rally in oil prices, driven by disruptions at Saudi Arabia's Red Sea port of Yanbu and Libya's halt of operations at three oil fields, has fueled inflation worries.
Rising energy prices will push inflation higher, said StoneX senior market strategist Daniel Pavilonis, who noted that gold is currently in a range-bound pattern. If rates continue to climb, prices could face further selling pressure, he added.
Financial markets are pricing in a quarter-point hike to a range of 3.75% to 4.00%, with traders estimating the probability of a rate hike this week at approximately 95%. The real variable lies in the Fed's post-meeting messaging and whether officials signal continued hikes or adopt a wait-and-see stance, Pavilonis said.
TD Securities senior commodity strategist Ryan McKay warned that gold prices are approaching key technical levels, and a break below them could prompt funds to flip to net bearish positioning ahead of the Fed's decision. However, he emphasized that long-term supportive factors such as central bank gold purchases and U.S. dollar depreciation risk still in place.