US Treasury Yields Spark Gold Price Plunge

Gold prices plummeted to their lowest level since August 5, falling by 4% to $4,111 an ounce on Monday, September 28. The sharp decline was largely attributed to a significant increase in US Treasury yields, which have reached their highest level since June 2007. According to Adrian Ash, head of research at BullionVault, the rise in borrowing costs has weakened demand for gold, as investors can earn higher returns from interest-bearing assets.

The jump in U.S. Treasury yields has also led to increased expectations that the Federal Reserve will raise interest rates for a second consecutive time in October, with markets putting the odds at about 70%. Higher interest rates typically reduce demand for gold, making it less attractive as an investment option. Fund managers' net long positions in gold fell to their lowest level since late July, and gold-backed exchange-traded funds recorded a small outflow of 1.6 tonnes last week.

However, some analysts believe that stronger demand in India ahead of Diwali and the wedding season could provide support for gold prices. Rhona O'Connell, a StoneX analyst, pointed to potential purchases by central banks and Indian consumers as a counterweight to the selloff. Yet, record-high prices may deter price-sensitive consumers from buying jewelry.