Gold prices fell sharply on Monday, dropping below $4,200 an ounce as a surge in oil prices, a firmer dollar, and another push higher in U.S. bond yields reinforced expectations that the Federal Reserve may continue its tightening cycle. Spot gold was down 2.1% at $4,198.10 an ounce by 0357 GMT, while U.S. gold futures fell 2.1% to $4,231. The decline put bullion on track for its steepest daily drop since September 1, extending the downward pressure from last week.
Oil Rally Backfires for Gold
Typically, gold benefits from oil-driven inflation scares as investors seek a hedge. This time, however, higher energy costs are being interpreted as a reason for the Fed to remain hawkish. Brent crude climbed back above $106 a barrel after U.S. President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and end the conflict, keeping supply concerns elevated. Although further talks were expected, the rejection underscored persistent geopolitical risks.
The Fed raised its benchmark rate by 25 basis points earlier this month to 3.75%-4.00%. Futures markets were pricing about a 68% chance of another increase in October on Monday. This combination is challenging for gold: higher oil supports the inflation-hedge argument, but higher policy rates and bond yields increase the opportunity cost of holding a non-yielding asset.
Real Yields Pressure Gold
The pressure is particularly visible in the bond market. U.S. 10-year yields were around 5.2% late last week, close to a two-decade high, while long-dated yields remained elevated. Barbara Lambrecht, commodity analyst at Commerzbank, told Kitco News that earlier-than-expected Fed tightening was lifting both nominal and real yields, increasing the cost of holding gold. She added that longer-term ETF investors had so far remained committed, limiting the risk of a deeper correction.
That leaves the $4,200 area as an important near-term test. OCBC strategists said in a note carried by FXStreet that persistent weakness below the $4,300-$4,354 resistance zone could expose support around $4,200 and then $4,000. This week's U.S. data could decide whether that support holds. Investors are due to get job openings, ADP employment figures, the PCE inflation gauge, and Friday's nonfarm payrolls report.
Structural Demand Remains Intact
The current selloff has not erased the longer-term demand story. World Gold Council data show global gold-backed ETFs attracted $18 billion in August, the second-largest monthly inflow on record. Holdings rose by 121 tonnes to a record 4,189 tonnes, while assets under management reached $615 billion. Suki Cooper, global head of commodities research at Standard Chartered, told Kitco News last week that higher U.S. rates could keep gold volatile in the short term, but structural forces including de-dollarisation, currency concerns, and policy uncertainty were providing support.
Other precious metals also sold off on Monday. Silver fell 3.4% to $62.08 an ounce, platinum dropped 2.7% to $1,730.78, and palladium declined 2.8% to $1,231.46.
This article is for informational purposes only and does not constitute financial advice.
