Gold drops to $3,995 per ounce amid pressure from US interest rates and rising energy prices

Kuwait City, October 25 (KUNA) -- Gold prices ended last week’s trading at $3,995 per ounce, recording a weekly loss of approximately 3.9 percent after falling to a nearly three-month low of $3,975 amid pressures from rising energy prices, growing inflation concerns, and anticipation regarding the trajectory of U.S. interest rates.

A report issued today, Sunday, by Kuwaiti Gold Company stated that the decline in gold coincided with rising oil prices and escalating geopolitical tensions in the Middle East, placing global markets in a scenario balancing increased demand for safe-haven assets against pressures stemming from the likelihood of higher interest rates.

The report added that the gold market is awaiting this week’s decisions by major central banks and U.S. economic data, foremost among which is the Federal Reserve’s meeting on October 27 and 28, and inflation data in the form of the Personal Consumption Expenditures (PCE) Price Index, scheduled for release on October 29.

It pointed out that pressures on gold came amid a notable rise in oil prices, which surged by more than 4 percent, surpassing the $100-per-barrel mark amid growing fears of energy supply disruptions due to military tensions in the Middle East and risks associated with navigation in the Strait of Hormuz.

The report noted that regional confrontations and tensions have heightened market uncertainty, with growing fears that the scope of disruptions could widen and impact global oil flows.

It clarified that rising energy prices lead to increased production and transportation costs, which may reflect on price levels and complicate central banks’ efforts to contain inflation.

It highlighted that consumer inflation expectations remained stable at 4.7 percent over the next twelve months and at 3.5 percent over five years, levels that reflect ongoing concerns about the price trajectory.

The report added that these indicators reinforce caution regarding the U.S. monetary policy path, as sustained economic activity strength and rising energy costs may slow the pace of inflation decline and provide the Federal Reserve with justification to keep interest rates elevated for longer.

It explained that this dynamic directly impacts gold, which is affected by changes in interest rate expectations and real yields on U.S. bonds, as higher yields increase the opportunity cost of holding the precious metal, while lower yields may provide support for prices.

It noted that market expectations point to a reduced probability of an interest rate hike during the October meeting, in contrast to rising bets on a December hike, which stand at approximately 78 percent.

This reflects a shift in investor focus from the anticipated decision at the upcoming meeting to the monetary policy path toward the end of the year, amid persistent inflation concerns.

The report added that markets are also monitoring U.S. dollar movements and Treasury bond yields, as they are among the most significant factors influencing gold’s direction, since sustained yield increases may intensify pressure on the precious metal, especially if accompanied by a stronger dollar driven by expectations of monetary tightening.

It affirmed that signs of declining inflation or slowing economic activity could curb yield increases and give gold an opportunity to recover part of its losses.

It clarified that the relationship between gold and the dollar is not constant under all circumstances, as market responses can change depending on the nature of geopolitical risks and the appetite for safe-haven assets.

On the geopolitical front, the report noted that developments in the Middle East and risks related to energy supplies and sea lanes will remain among the key potential drivers of markets this week. It clarified that rising tensions could support gold demand as a hedge asset during periods of uncertainty; however, oil price increases stemming from supply disruptions could intensify inflationary pressures and prompt central banks to delay rate cuts or keep rates elevated for longer. The report stated that gold thus faces a dual effect: benefiting from growing geopolitical risks while simultaneously facing pressure from higher interest rate and yield expectations.

It added that this week’s agenda includes a range of monetary policy decisions by the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, the Reserve Bank of Thailand, and the Reserve Bank of New Zealand. It pointed out that these banks’ decisions and forward guidance will be closely monitored for signals regarding global interest rate trends and yield differentials among major currencies. The report also noted that markets are awaiting the initial US and Eurozone GDP readings, alongside US and European inflation data, including Germany’s initial consumer price index readings and those of several major European economies, as well as inflation data from Tokyo and Australia.

Technically, the report said gold faces a significant test after falling below the $4,000-per-ounce level, with selling pressure persisting and the short-term trend remaining vulnerable to further volatility. It added that $3,975 represents the first support level, having recorded the session’s low, followed by $3,959 and then $3,941, which marks the year-to-date low. Breaking these levels could increase selling pressure, especially if accompanied by a stronger dollar, higher yields, and renewed expectations of monetary policy tightening.

Conversely, the report stated that gold needs to reclaim and hold above the $4,000 level to improve short-term momentum, while $4,100 represents a key resistance level; a breakout above it could pave the way toward $4,200. It added that surpassing these levels remains contingent on a more sustainable return in buying demand, alongside signs of easing inflationary pressures or declining rate hike expectations. It emphasized that gold’s ability to reclaim $4,000 and then break through the $4,100 resistance will be a crucial factor in assessing recovery prospects, whereas continued trading below these levels, with support zones broken, would keep downside risks intact.

On the local front, the report said domestic gold prices continue to be influenced by global markets. The price of 24-karat gold reached approximately 0.30 Kuwaiti dinars per gram (about $130), while 22-karat gold recorded around 0.09 Kuwaiti dinars per gram (about $119). The price of a kilogram of silver stood at approximately 0.601 Kuwaiti dinars (about $1,951), as traders await global developments in precious metals and energy prices, as well as US monetary policy decisions. (End) S.M.R./H.T.