Gold Prices Hold Steady as Dollar and Treasury Yields Offset Rate Bets

Gold prices held steady near $4,140 per ounce as pressure from a strengthening U.S. dollar and multi-decade high Treasury yields offset a sharp cooling in investor expectations for a Federal Reserve interest rate hike this October.

Spot Gold and Futures Trade in Tight Ranges Amid Competing Market Pressures

Precious metals faced a complex tug-of-war on Monday and Tuesday as traders weighed macroeconomic headwinds against shifting monetary policy bets. Spot gold hovered near $4,140 an ounce, edging down slightly to $4,139.89 per ounce by 2:04 p.m. EDT on Monday before experiencing further minor fluctuations, with spot gold later trading around $4,120.16 and Gold Futures at $4,146.80. Meanwhile, U.S. gold futures for December delivery settled down 0.1% at $4,156.80, while other sessions recorded XAU/USD at $4,138.09 and Gold Futures at $4,165.15.

Federal Reserve Rate Hike Expectations Cool After Weaker Job Growth Data

The primary support lifting gold out of its deeper September losses stems from a dramatic scaling back of expectations for an immediate U.S. central bank rate hike. Data released on Friday showed that U.S. job growth slowed more than expected in September, while nonfarm payroll figures for the prior two months were revised lower. Market participants responded by sharply lowering their bets on near-term monetary tightening.

According to the CME FedWatch Tool and interest rate swaps, traders are factoring in roughly a 22% to 23% probability of a Federal Reserve rate hike in October, down significantly from about 70% the previous week.

“In recent days, the economic data that we’ve seen from the US have largely disappointed expectations, and that has caused the interest rate hike bets to be pared.”

Fawad Razaqzada, market analyst at Forex.com, via Reuters

Even so, traders continue pricing in an 84% to 88% chance of an increase at the December FOMC meeting. Persistent inflationary pressures continue to complicate the outlook. A report from the Institute for Supply Management showed that cost pressures in the U.S. services sector rose in September at their fastest pace in more than four years, pushing a measure of prices paid by businesses for inputs to its highest level in over four years, while the ISM Services PMI decreased from 55.4 to 54.9.

Gold stalls below $4,150 as rising US yields offset Fed relief — Photo: fxstreet.com

Stronger U.S. Dollar and Multi-Decade High Treasury Yields Cap Bullion Gains

Counterbalancing the relief from fading October rate hike odds, a resurgent U.S. dollar and soaring bond yields placed heavy downward pressure on non-yielding bullion. The U.S. Dollar Index surged to 102.53, its highest level since April 10, 2025, propelled higher as the euro slumped to a 17-month low amid political uncertainty and fiscal concerns in France, with the DXY subsequently measured at 102.17 and 102.27. Bank of France Governor Emmanuel Moulin warned that France could face severe constraints from high interest costs if public finances do not improve.

At the same time, U.S. Treasury yields climbed sharply, with two-year yields up 2 basis points to 4.84% and ten-year yields surging more than 1% to a cycle high of around 5.34%, or 5.341%, reaching multi-decade highs and hoisting the opportunity cost of holding gold. Market analysts noted that these elevated yields siphon capital away from precious metals.

“We could see a near-term drop (in gold prices) before the buyers step in a meaningful way, ⁠and it’s all to do with the fact that the dollar has been climbing higher and yields are elevated.”

Fawad Razaqzada, market analyst at Forex.com, via Reuters

Market Outlook and Coming Federal Open Market Committee Minutes

Investors are now looking ahead to the release of the September Federal Open Market Committee meeting minutes on Wednesday to glean further direction on monetary policy following last month’s interest rate increase—the first in three years. Meanwhile, weekly CFTC data on futures and options showed money managers in the week ending September 29 decreased their bullish gold bets by 6,916 net-long positions to 124,418, reaching their lowest level in more than two months, while short-only positions rose 2,267 lots to 10,240 lots for a four-week high.

Despite near-term headwinds from currency strength and bond yields, institutional sentiment over the medium-to-long term remains highly optimistic. Precious metals consultancy Metals Focus anticipates that gold will reach all-time highs in 2027 as investors continually seek alternatives to traditional dollar-denominated assets, projecting that the metal will average $5,330 per ounce next year.