High Yields Weigh on Gold; FOMC Meeting Next Key Test

Gold prices weakened during Tuesday's trading (August 18) as rising US Treasury yields and a surge in oil prices dampened appetite for the precious metal. Spot gold fell approximately 0.6% to US$4,387.25 per troy ounce, while US gold futures for December delivery declined about 0.7% to US$4,443.60.

The primary pressure stemmed from the 10-year US Treasury yield, which resumed its upward trend. Rising bond yields increased the opportunity cost of holding non-interest-bearing gold, prompting some investors to reduce their exposure to bullion.

A rebound in oil prices also added to the pressure. Iran announced a shift toward a more offensive military stance following a diplomatic stalemate with the United States, while Washington declined to extend a temporary ceasefire agreement. These conditions heightened the risk of energy supply disruptions and reignited inflation concerns.

Surging energy prices present a dilemma

Surging energy prices present a dilemma for gold. On one hand, geopolitical risks could boost safe-haven demand; on the other, rising oil prices could fuel inflation and prompt the Federal Reserve to keep interest rates higher for longer. Markets currently estimate a roughly 65% ​​probability that the Fed will hold interest rates steady in September, following recent weak data on US employment, inflation, and retail sales.

Market attention has now shifted to the minutes of the July FOMC meeting, due for release on Wednesday. Investors will be looking for clues regarding the extent of Fed officials' concerns over energy-driven inflation and whether recent economic pressures are sufficient to keep interest rate policy unchanged.

Newsmaker Analysis: The US$4,381 level serves as the immediate support for gold. If this level is breached, selling pressure could extend toward the US$4,351–US$4,320 range. Conversely, if buyers can defend this area and push the price back above US$4,400, the potential for a rebound toward US$4,420–US$4,450 re-emerges. (arl)

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