Gold prices rose more than 1% on Thursday, with spot gold trading 1.1% higher at $4,434.70 per ounce by 0425 GMT after hitting a near one-month low in the previous session, according to The Hindu BusinessLine. US gold futures gained 1.5% to $4,480.10 during the same period. The US dollar was under pressure while US Treasury yields slipped from multi-year highs, making greenback-priced metals less expensive for holders of other currencies. A softer dollar can increase gold's appeal for investors holding foreign currencies, while declining Treasury yields reduce the opportunity cost of holding non-yielding gold. Gold typically comes under pressure when bond yields and the US dollar rise, as unlike interest-bearing assets, gold does not generate regular income, making it relatively less attractive when yields increase.
Markets are currently pricing in a 62% probability of a US rate hike this month, according to the CME FedWatch Tool, as reported by The Hindu BusinessLine. The US economic activity increased modestly, employment rose slightly, and prices increased moderately in recent weeks, according to a mixed report published on Wednesday by the Fed that may do little to convince central bank policymakers as they weigh whether to raise interest rates at their September 15-16 meeting. The ADP National Employment Report showed US private payrolls increased moderately in August, pointing to softer hiring momentum and further reducing expectations for aggressive tightening. The payrolls report from Friday will be in focus, with a stronger print keeping rate hike expectations firmly in play and potentially pushing yields higher, while a weaker number would strengthen the case for the Fed keeping rates steady in September. "The payrolls report will probably be the biggest defining moment of the week. If the jobs report misses expectations, and September rate hike bets decline, that could see gold move higher," said Ilya Spivak, head of global macro at Tastylive. "If prices get over the $4,400 level they're currently in, we are going back in the direction of $4,500 and then $4,700."
Markets are concerned about the contrasting strategies of US Fed Chair Kevin Warsh and Treasury Secretary Scott Bessent, according to The Financial Express. Warsh aims to reduce inflation via rate hikes, while Bessent plans to double bond buy-back operations to increase liquidity and lower yields. Bessent argues that the increase in yields is due to energy supply shocks linked to the ongoing conflict with Iran, rather than a failure in the market, and suggests that the Federal Reserve should not raise interest rates in response. In his debut speech at Jackson Hole as Federal Reserve chair, Kevin Warsh himself acknowledged that fighting inflation is one of his priorities. Inflation remains a key factor influencing market expectations, with both the US CPI and PPI data continuing to show stickiness and remaining much above the 2% target of the US Fed. Federal Reserve Bank of New York President John Williams indicated that the increase in long-term bond yields reflects a strong economy rather than inflation fears, noting that inflation is easing as tariff effects diminish.
On the geopolitical front, top aides to US President Donald Trump are pushing to keep the Iran war from escalating before November's midterm elections to staunch Republican electoral losses, four people familiar with the discussions said, according to The Hindu BusinessLine. White House officials will consider ramping up military action after the November 3 vote, the sources said. Trump's comments that the latest attacks on Iran would likely be short-lived have helped ease inflationary concerns driven by a renewed spike in energy prices. However, Iran-driven inflation concerns persist, with oil prices having breached $96 and rising over 20% in the last month. The fresh fighting had rekindled fears of an open-ended war that would fuel inflation, a headwind for non-yielding bullion. Oil's rally slowed after Trump's comments, with Brent crude rising 0.7% to $95.34 a barrel, as reported by CNBC TV18. Renewed hostilities in the Middle East sent oil prices higher initially, but Trump's comments have helped ease these concerns.
Bond yields across Japan, the US, and Europe are climbing to multi-decade highs, signalling that higher rates may be here to stay regardless of what the Fed decides this month, according to The Financial Express. On September 1, a sell-off in global bond markets escalated, with Japan's 10-year bond yield reaching 3% for the first time since 1996. The US 10-year Treasury bond yield is at 4.77% on Thursday, approaching its highest level since October 2023, with a potential climb toward 5% likely to disturb the already anxious stock markets. The 30-year US Treasury yield topped 5.33% mid-August, a level last seen in June 2007, and is currently at 5.25%. The rising bond yields are sending a signal that rates, at least on the longer-term securities, are going to remain higher, with longer-term inflation expectations and concerns over the US fiscal debt burden making investors demand higher rates to hold US Treasury bonds.
