Gold prices plummeted to their lowest levels since August on Wednesday. The decline was triggered by a strengthening US dollar and climbing Treasury yields as investors await the release of Federal Reserve meeting minutes.
The 1.3 percent drop to $4,107.88 per ounce
Spot gold prices fell approximately 1.3 percent to $4,107.88 per ounce on Wednesday,marking the steepest decline in two months. According to the report, US gold futures for December delivery followed a similar trajectory, sliding 1.3 percent to reach $4,133.30. This downward pressure was amplified by a 0.5 percent increase in the US dollar index, which makes the dollar-denominated metal more expensive for international buyers.
The sell-off was further accelerated by 10-year US Treasury yields reaching heights not seen in over two decades. Because gold is a non-yielding asset , it becomes less attractive when government bonds offer guaranteed, rising returns. As reported, this inverse relationship has led investors to pivot their capital away from bullion and toward US Treasuries.
The 84 percent probability of a December rate hike
Market volatility is currently driven by expectations surrounding the Federal Reserve's monetary policy.. Data from the CME FedWatch tool indicates an 84 percent probability that the Federal Reserve will increase interest rates in December, even if rates remain steady during the next meeting this month.
This hawkish outlook is supported by statements from key central bank figures. Jeff Schmid, the President of the Kansas City Fed, has suggested that additional rate hikes may be required to fight persistent inflation. Similarly, Mary Daly, President of the San Francisco Fed, noted that future policy shifts will depend on the trajectory of inflationary pressures. This "higher for longer" stance increases the opportunity cost of holding gold, pushing prices lower.
Silver's 2.8 percent slide and the oil divergence
The bearish sentiment extended across the broader metals market on Wednesday. Spot silver prices dropped 2.8 percent to $59.96 per ounce, while platinum and palladium saw even sharper declines of 3.5 percent and 4.2 percent, respectively. This suggests a systemic retreat from precious metals as the US dollar dominates .
Interestingly,the energy sector moved in the opposite direction. Oil prices rose due to supply risks in the Middle East and the threat of severe storms hitting US oil-producing regions. This divergence highlights a fragmented commodity market where geopolitical instability supports energy prices but fails to offset the impact of US interest rates on safe-haven metals.
China's 23-month buying streak
Despite the current slump, institutional demand provides a significant buffer for gold. Peter Grant, a senior metals strategist at Zaner Metals, suggests that while gold may test support levels around $4,000 in the short term, it could recover to $4,400 by the end of the year.
This optimism is rooted in the behavior of sovereign wealth funds. Specifically, China's central bank continued its aggressive acquisition strategy in September, marking its 23rd consecutive month of gold purchases. This steady demand from major global economies suggests that while retail and speculative traders are fleeing due to the US dollar, institutional holders view the metal as a critical long-term strategic asset.
Will the September Fed minutes trigger a $4,000 test?
The primary remaining uncertainty is the exact content of the Federal Reserve's September meeting minutes. While the market has priced in a high probability of a December hike, the minutes may reveal a more nuanced or dovish internal debate that could reverse the current trend.
Furthermore , the report focuses heavily on the US dollar and Fed policy, leaving it unclear if other geopolitical factors—beyond the Middle East oil risks—might provide a sudden catalyst for a gold rally. Whether the $4,000 floor holds depends entirely on if the Federal Reserve's actual communications match the current aggressive market expectations.
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