Gold Falls as Higher Oil Prices Lift Expectations for Further Fed Rate Hikes

McAllen, Texas — Gold prices moved lower on Tuesday as investors weighed rising oil prices and increasingly hawkish signals from Federal Reserve policymakers, strengthening expectations that U.S. interest rates could remain elevated for an extended period.

Spot gold fell 1.1% to $4,295.62 per ounce by 0832 GMT, while U.S. gold futures dropped 1.2% to $4,332.

Bullion came under pressure as Treasury yields and oil prices climbed. Because gold does not generate interest income, higher yields can make income-producing assets more attractive to investors.

Jamie Dutta, a market analyst at trading platform Nemo.money, said rising Treasury yields and oil prices were weighing on gold. He also pointed to tighter monetary policy as a challenge for the precious metal.

The Federal Reserve increased its policy rate by 25 basis points last week, while Chairman Kevin Warsh indicated that further increases could be implemented in the coming months.

Other Federal Reserve policymakers have likewise highlighted ongoing inflation risks. St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee have indicated that additional rate increases may be necessary to address inflation linked to strong demand and rising energy prices.

Expectations for another rate increase have strengthened as a result. Traders were pricing in a 92% probability of a December rate hike, compared with 80% one week earlier, according to the CME FedWatch Tool.

Gold is traditionally viewed as a hedge against inflation and geopolitical uncertainty. However, the metal can become relatively less attractive when interest rates are high because investors have more opportunities to generate returns from income-producing assets.

Oil prices also advanced on Tuesday following four straight sessions of declines, adding another inflation concern for financial markets. Investors were monitoring developments related to possible U.S.-Iran talks at the United Nations General Assembly.

For gold traders, the combination of higher energy prices and expectations for tighter monetary policy has become an important market consideration.