Middle East Oil Disruptions Trigger Fed Expectations
Supply concerns and inflation worries caused by the regional pipeline crisis have led spot gold to pull back to around the $4,300 level.
Expectations that oil flow disruptions from the Middle East will stoke inflation have reinforced pricing for a Federal Reserve rate hike, pushing spot gold to its lowest level in five weeks and trading around $4,300.
Fed Expectations and Spot Gold
Gold declined as mounting disruptions in oil flows from the Middle East reinforced expectations that the Fed will raise interest rates this week. Bullion traded around $4,300 after dropping more than 1% in the previous session to touch its lowest level in five weeks.
Markets are pricing in a 92% probability that the central bank will raise interest rates at its upcoming meeting.
Oil Supply and the Pipeline Crisis
Oil prices rose after Saudi Arabia shut down its East-West oil pipeline following attacks last week. The pipeline outage threatens millions of barrels of daily oil supply that was transported through this route to bypass the crisis in the Strait of Hormuz.
Saudi Arabia has not yet made a statement regarding how long the disruption will last and how quickly it can increase oil shipments via Hormuz to make up for the shortfall.
Bond Yields and Markets
Gerald Gan, Chief Investment Officer at Reed Capital Partners, said gold is likely to remain under pressure before and immediately after the Fed meeting. Gan noted that higher bond yields and hawkish market expectations will weigh on gold.
The yield on the US 10-year Treasury note briefly rose to 5% on Monday for the first time in nearly three years, driven by inflation concerns and increased borrowing needs. This development created additional pressure on gold, which yields no interest.
Latest Status in Precious Metals
Spot gold traded 0.2% higher at $4,308.92 an ounce at 10:30 Singapore time. Silver rose 0.4% to $63.48 an ounce following a 2% decline the previous day. Platinum and palladium also posted slight gains.
Meanwhile, the Bloomberg Dollar Spot Index, which tracks the US currency, held steady after rising 0.4% in the previous session. Gold has fallen more than 3% in September, after trading above $4,700 an ounce at the end of August.