Gold Prices Under Pressure but Holding the Bottom Line, Fed Decision Heavy, Investors Focused on Data Shock!
On Tuesday, a combination of factors including a stronger dollar, soaring U.S. Treasury yields, sharp increases in crude oil prices, and increased expectations of Fed rate hikes continued to weigh on gold prices. The market is closely watching the Fed's policy decision to be announced on Wednesday, which could further reshape gold's short-term trajectory.
Gold is priced in US dollars, and every strength in the dollar directly raises the holding costs for non-US currency buyers, thereby suppressing demand. The yield on the US 10-year Treasury note once rose to 5.041%, the highest level since July 2007, while the 30-year yield hit 5.401%, also approaching a nearly 19-year high. The rapid rise in risk-free yields has significantly weakened gold's relative appeal, and investors prefer to hold US Treasuries that provide stable returns rather than zero-yield precious metals.
Currently, gold prices are generally stuck in a range-bound range, and if rates continue to rise, prices may decline further. The market has largely priced in the risks of the Federal Reserve's hawkish stance, but if policymakers suggest rates will remain high for a longer period, gold will still face downward pressure. This high interest rate environment is suppressing gold directly as a direct reflection of recent price weakness.
What truly intensified market tensions was the sharp rise in crude oil prices. Saudi Arabia's Red Sea export hub Yanbu port suspended crude oil shipments, and Riyadh canceled some shipments to European customers scheduled for late September. Yemen's Houthi forces launched consecutive attacks on Saudi Arabia, even forcing Saudi Arabia last Friday to close its east-west oil pipeline. This pipeline, about 1,200 kilometers long, is a key oil export route for Saudi Arabia bypassing the Strait of Hormuz, and its long-term shutdown could cut off up to 4% of global oil supply
Goldman Sachs warned that attacks on oil infrastructure mark a significant escalation of the conflict, with the likelihood of crude oil breaking through $120 per barrel. Although the U.S. Energy Secretary stated that pipelines are expected to resume within days, the market remains highly alert about the risk of disruptions lasting weeks. The surge in oil prices has directly driven up inflation expectations.
Financial markets are now heavily betting that the Federal Reserve will raise its key overnight interest rate band by 25 basis points on Wednesday to 3.75%-4.00%, potentially signaling further tightening.
Market Insight:
New Chairman Wash may face pressure from Trump to cut rates, but the current inflation and oil price environment limit decision-making space. Even if the rate hike materializes, most of the dollar's positive effects may have already been digested, and subsequent trends will depend more on the forward-looking signals released at the press conference. The combination of high interest rates and a strong dollar could erode gold's investment appeal.
