Gold falls 3.3% as oil, Treasury yields and dollar rise
Spot gold dropped to a more than seven-week low as rising oil prices fed inflation worries and lifted pressure from yields and the dollar.
By Daniel Okafor · Business Editor
2 min read
Gold falls higher dollar oil was the market pattern on September 28, when spot bullion dropped 3.3% to $4,146.51 an ounce, its lowest level since August 5, according to Al Jazeera. U.S. gold futures also fell 3.3%, to $4,178.40. The move matters for gold holders because higher borrowing-rate expectations, Treasury yields and the dollar were all weighing on a metal that pays no interest.
Al Jazeera reported that oil prices rose about 3% after President Donald Trump rejected an Iranian offer to resolve the conflict and reopen the Strait of Hormuz. The dollar held near a two-month high as oil's rise added to inflation concerns, while Treasury yields also increased.
Why do higher yields and a stronger dollar pressure gold?
Gold does not provide interest income. When Treasury yields rise, investors can obtain higher returns from yield-bearing assets, increasing the cost of holding bullion instead, according to Al Jazeera and Reuters.
A stronger dollar can also curb demand outside the United States because gold is priced in dollars. For buyers using other currencies, the same ounce of bullion becomes more expensive when the dollar gains, Reuters reported in separate market coverage.
The relationship is not automatic: gold is commonly used as an inflation hedge. But the reports said the market was focused on the prospect that energy-driven inflation could keep interest rates high or lead to further increases, conditions that can reduce gold's appeal.
Rate outlook added to market pressure
The Federal Reserve raised its benchmark interest rate by a quarter percentage point earlier in September and indicated that at least one further increase was likely in the coming months, Al Jazeera reported. Several policymakers also warned that inflation risks remained elevated.
Jim Wyckoff, an analyst at American Gold Exchange, told Al Jazeera that the combination of higher Treasury yields and the dollar was pushing metal prices sharply lower. The reported oil, currency and bond-market moves were associated with the decline, rather than establishing that any single factor caused it.
Other precious metals also declined
The sell-off extended beyond gold. Spot silver fell 4.7% to $61.27 an ounce, while platinum declined 2.9% to $1,726.30 and palladium lost 4.4% to $1,211.45, according to Al Jazeera.
The price moves followed a broader period in which markets had been weighing oil costs, inflation and the likely path of U.S. interest rates. Reuters has reported that elevated energy prices can heighten inflation concerns and reinforce expectations for rates to remain high, a backdrop that has tended to weigh on non-yielding gold.
This story draws on original reporting from Al Jazeera.