Gold Weakens Ahead of Fed Rate Decision With Odds of Hike at 92%
Summary
- Spot gold weakened in the $4,280-an-ounce range as rising global oil prices and Treasury yields, along with a 92% chance of a Fed rate hike, weighed on the metal.
- An OCBC strategist said that if the Fed keeps the door open to further tightening, gold could fall as low as $4,000 if the $4,250 support level per ounce gives way.
- Gold traded above $4,700 an ounce at the end of last month, but has fallen 3% in September as the outlook for Fed monetary policy was revised.
Forecast Trend Report by Period
Gold weakened into the $4,280-an-ounce range ahead of the Federal Reserve's interest-rate decision as firm oil prices and rising Treasury yields fueled concerns that policy will stay tight.
Bloomberg reported that spot gold fell 0.2% to $4,284.99 an ounce as of 8:45 a.m. in Singapore on September 16. Bullion had already declined for two straight sessions and was trading around $4,290 an ounce.
Inflation concerns have resurfaced as global oil prices remain elevated. Rising US Treasury yields have also prompted markets to price in a 92% chance of a Fed rate increase later on September 16. Higher rates typically reduce the appeal of non-yielding assets such as gold.
The yield on the US 10-year Treasury rose as high as 5.04% in the previous session, the highest level since 2007. Surging energy prices and funding demand tied to large capital investment are adding pressure to global bond markets.
Christopher Wong, a strategist at OCBC, said the key uncertainty is not the rate increase itself but what follows, given that markets have already heavily priced in a hike this week. Gold could face greater downward pressure if the Fed leaves the door open to further tightening. If support at $4,250 an ounce breaks, prices could fall to $4,000.
Oil prices are also a key variable for gold. Saudi Aramco is delaying crude supply to some European customers, while it remains unclear when Saudi Arabia's East-West pipeline, shut after last week's attack, will resume operations.
Gold traded above $4,700 an ounce at the end of last month, but has fallen more than 3% in September as expectations for Fed monetary policy were repeatedly revised. At the same time, silver was little changed at $63.68 an ounce, platinum fell 0.2%, and palladium rose 0.1%.
