Gold rises as bond yields retreat from multiyear highs

Highlights

Gold prices are rising, with spot gold near $4,200.
Lower Treasury yields are supporting bullion.
Fed rate-hike expectations have weakened.

Spot gold was trading at $4,186.05 an ounce, up 0.21%, while December gold futures rose 0.32% to $4,215.95, according to the latest market data. Treasury yields retreated across the curve on Thursday, including a pullback in the 10-year yield from its highest level in 24 years, Bloomberg reported.

Lower yields give gold some room

The retreat in Treasury yields matters directly for gold because bullion does not pay interest. When bond yields rise, investors can earn higher returns from government debt, increasing the opportunity cost of holding the metal. A decline in yields reduces that disadvantage.

That relationship weighed heavily on gold in September. Bullion fell about 6% during the month as bond yields climbed and markets prepared for tighter monetary policy.

The latest shift has been reinforced by comments from Federal Reserve Vice Chair Philip Jefferson. He said policymakers may need more time to determine the appropriate path for interest rates and would assess incoming data, the economic outlook, and the balance of risks before making further adjustments.

Market pricing now puts the probability of an October rate increase at roughly 26%, compared with about 70% earlier this week. The Fed raised its target range by a quarter percentage point in September to 3.75% to 4%, and Jefferson said inflation remains above the central bank’s target with risks still tilted to the upside.

Energy risks complicate the rate outlook

Gold is also trading against an uncertain inflation backdrop. Oil prices have remained elevated as the conflict involving the U.S., Israel, and Iran threatens energy flows from the Middle East. Higher energy costs could slow progress on inflation and make it harder for the Fed to move away from restrictive policy.

Jefferson said recent energy shocks were among the forces keeping near-term inflation elevated, although his baseline expectation remains for price pressures to resume their decline as those effects fade.

Gold remains caught between yields and inflation

Gold has regained some support as Treasury yields retreat and expectations for an immediate Fed move diminish. Lower bond yields reduce competition from interest-bearing assets and can make bullion comparatively more attractive.

The obstacle is that inflation risks have not disappeared. Persistent energy pressures or stronger economic data could keep monetary policy restrictive and push bond yields higher again. A sustained recovery in gold, therefore, depends not only on the Fed delaying another increase but also on whether Treasury yields continue to move away from their recent highs.

As we previously reported, the gold demand premium supports further gains as U.S. bond yields climb.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.