Gold prices remained under pressure on Monday, slipping to $4,330 as investors weighed the impact of surging crude oil costs and elevated US Treasury yields ahead of the Federal Reserve's policy meeting on Wednesday. The precious metal has now retreated 7.76% from its monthly high, reflecting growing concerns that persistent inflation will force the central bank to maintain its aggressive tightening stance.
Oil rally stokes inflation fears
Energy markets have been a key driver of the selloff in gold. Brent crude, the international benchmark, jumped to $108 per barrel, a sharp increase from its July low of $70. West Texas Intermediate (WTI) rose to $103, hovering near levels not seen since May. The rally is largely attributed to escalating tensions between the United States and Iran, with recent strikes targeting oil tankers in the Strait of Hormuz. Additionally, Iran-backed groups in Yemen and Iraq have entered the fray, with Iraqi militias striking Saudi Arabia's East-West pipeline—a critical artery that moves over 7 million barrels per day—forcing its temporary closure. Houthi forces, also known as Ansar Allah, have consolidated control over large parts of Yemen.
Soaring energy prices have direct implications for inflation. Last Friday's data showed that both headline and core inflation remain above the Fed's 2% target, reinforcing expectations that the central bank will announce another rate hike on Wednesday. Higher interest rates typically weigh on gold, as the metal offers no yield and becomes less attractive relative to income-generating assets.
US bond yields climb toward 5%
Gold also faced headwinds from the continued rise in US government bond yields. The 10-year Treasury yield reached 4.98%, approaching the psychologically significant 5% level, while the 30-year yield climbed to 5.367%. Similar trends are visible in other major economies, including Canada, Germany, France, and the UK, where bond yields have surged over recent months.
The upward pressure on yields stems from several factors. US public debt has ballooned to over $40 trillion and continues to grow, while the ongoing artificial intelligence boom has prompted major corporations like Microsoft and Google to raise substantial capital, increasing the supply of bonds. For gold investors, rising yields are a critical concern because they increase the opportunity cost of holding non-yielding assets.
Technical outlook: further downside possible
From a technical perspective, gold's daily chart shows a clear downtrend. The metal peaked at $4,694 on August 25, forming a doji candlestick pattern that signaled a potential reversal. Since then, prices have fallen below the 50-day exponential moving average (EMA) and the Major S/R pivot point of the Murrey Math Lines tool. Momentum indicators, including the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD), continue to point lower.
Given these signals, gold could extend its decline in the near term, with sellers eyeing the key support level of $4,062. A decisive break below the immediate support at $4,283 would confirm this bearish scenario. However, any unexpected dovish tone from the Fed could trigger a rebound, so traders will be closely watching the central bank's statement and projections.
For broader market context, the current environment of rising oil prices and bond yields is also affecting other asset classes. As noted in our analysis of Asian markets, the combination of high energy costs and elevated yields is pressuring equities and cryptocurrencies alike. Meanwhile, the latest inflation data has boosted the odds of a rate hike to over 73%, according to market pricing.
Investors will also be monitoring the crude oil rally for any signs of easing, as well as the trajectory of Treasury yields. If oil prices continue to climb, inflation expectations could rise further, potentially forcing the Fed to adopt an even more hawkish stance. Conversely, a pullback in energy prices might alleviate some pressure on gold.
This article is for informational purposes only and does not constitute financial advice.
