Key Highlights
- Gold declined 0.6% to $4,271 per ounce, reaching its lowest point in five weeks
- Crude oil surged following Saudi Arabia’s closure of its east-west pipeline after militant attacks
- Federal Reserve rate hike probability has surged to 92% for Wednesday’s policy meeting, compared to 59% seven days prior
- U.S. 10-year Treasury bond yields surpassed 5%, marking nearly two-decade highs
- Rising interest rates and dollar strength both weigh on non-yielding gold assets
Gold prices experienced a significant decline on Tuesday, breaching the $4,300 per ounce threshold as escalating crude oil values intensified inflation concerns before a critical Federal Reserve policy announcement.
Spot gold decreased 0.6% to settle at $4,271.32 per ounce. Meanwhile, gold futures contracts declined 1.0% to $4,310.90 per ounce during early market activity.
The precious metal had previously touched a five-week bottom during Monday’s session. Tuesday’s trading session extended losses as energy sector developments amplified downward momentum.
Saudi Pipeline Attack Triggers Energy Market Concerns
Saudi Arabia suspended operations on its east-west pipeline following an assault by Iran-aligned Houthi forces based in Yemen. The 1,200-kilometer conduit is anticipated to remain non-operational for three to five weeks during repair work, particularly at a critical pumping facility.
Since late August, this pipeline had been transporting between 2.6 million and 4 million barrels daily. Market participants estimate an extended closure could remove approximately 4% of worldwide oil availability.
Brent crude advanced 2% to reach $107.70 per barrel in response to the supply disruption. This development follows the earlier effective closure of the Strait of Hormuz, establishing the pipeline as an essential channel for Saudi petroleum shipments.
As energy expenses increase, market participants fear inflation may persist at elevated levels or accelerate further. This scenario intensifies expectations for Federal Reserve intervention.
Markets Price In Near-Certain Fed Action
Financial markets now assign a 92% probability to a rate increase at the Federal Reserve’s Wednesday policy deliberation. This represents a dramatic escalation from the 59% likelihood calculated one week earlier, based on CME FedWatch tracking data.
U.S. 10-year Treasury bond yields have broken through 5%, representing their most elevated position in approximately two decades. Simultaneously, the U.S. dollar index has gained strength.
These dual dynamics create headwinds for gold valuations. Since gold generates no yield, elevated interest rates diminish its attractiveness relative to income-producing investments. Additionally, a robust dollar increases gold’s cost for international purchasers using alternative currencies.
Lukman Otunuga, Head of Market Research at FXTM, observed that markets are entering a period where petroleum, monetary policy authorities, and bond yields may align directionally. He emphasized that the critical factor is whether policymakers validate or challenge current market expectations, with the outcome likely determining significant movements across currency, equity, and precious metal markets.
ANZ market strategists similarly highlighted that contracting oil availability is strengthening rate hike anticipations, contributing additional downward pressure on gold valuations.
Gold futures were most recently quoted at $4,331.20 per troy ounce during European morning trading hours, representing a 0.5% intraday decrease.
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