San Francisco Frontiers - Gold Remains Under Pressure as Energy Inflation Clouds Rate Outlook

Gold traded near $4,145 an ounce after retreating as higher energy prices added to inflation concerns and complicated expectations for US interest rates.

Gold held a decline, as elevated oil prices fueled inflation concerns and clouded the Federal Reserve’s path for interest-rate hikes.

Bullion was trading at around $4,145 an ounce, after falling 0.6 per cent in the previous session. Oil fluctuated near a five-month high after Iran stated it has “no choice” but to assert control over the Strait of Hormuz, while US lawmakers resisted President Donald Trump’s diesel export deal with Russia.

Gold was also under pressure as yields on US Treasuries held onto gains in the earlier session. A rebound in technology shares sapped some haven demand for the US government debt, pushing yields higher and weighing on the yellow metal.

Traders are trying to anticipate the Fed’s next move in its battle to keep inflation in check. Chair Kevin Warsh did nothing to dispel expectations it will hold interest rates steady when it meets next week in a speech on Friday ahead of a communications blackout. That spurred bets on the probability of a quarter-point hike to fall below 20 per cent, from as likely as two-in-three late last month.

Bullion has generally held above $4,100 so far in October, consolidating after a decline of over 6% in the previous month despite a stronger US dollar and high bond yields. Still, it’s down about a fifth since the US-Iran conflict erupted in late February and traders still see a 90% probability of another rate increase by the end of the year. Higher borrowing costs are a headwind for gold, which doesn’t pay interest.

Spot gold rose 0.1 per cent to $4,144.15 an ounce at 12:25 p.m. in Singapore, while silver was up 0.6 per cent at $57.44. Platinum and palladium also edged higher. The Bloomberg Dollar Spot Index, a gauge of the US currency, was 0.2 per cent lower.

H.Davis--SFF