Gold Drops Under Pressure from Bond Yields and Oil

Gold prices fell by about 3% on Monday, as rising oil prices exacerbated inflation concerns and bolstered expectations that the US Federal Reserve (the US central bank) would raise interest rates again. Spot gold dropped 3% to $4,156.45 per ounce, marking its lowest level since August 5. US gold futures also declined 3.1% to $4,188.80 per ounce. Giovanni Stonefou, an analyst at UBS, said that higher oil prices and increased market participants’ pricing in further US rate hikes are the main drivers behind gold’s recent weakness. He added that these conditions could keep US real yields and the dollar at elevated levels, raising the cost of holding non-yielding gold and contributing to increased volatility in the precious metal in the near term. Meanwhile, Tim Waterer, chief market analyst at KCM Trade, said that rising bond yields coupled with higher oil prices remain a headwind for gold. Brent crude prices rose after US President Donald Trump rejected a ceasefire agreement with Iran to end their conflict and reopen the Strait of Hormuz, allowing tensions in the Middle East to persist. Higher energy costs tend to fuel inflation by pushing up prices across various sectors of the economy.