Gold gains over 1% as oil, yields slip ahead of Fed rate decision

Gold rose over 1% on Wednesday as oil prices and U.S. Treasury yields declined, while investors awaited the U.S. Federal Reserve’s interest-rate decision and remarks from Chair Kevin Warsh later in the day for clues on future monetary policy path.

Spot gold was up 1.4% at $4,353.82 per ounce as of 09:25 a.m. EDT (1325 GMT) after touching a more than one-month low on Monday. U.S. gold futures for December delivery rose 1.4% to $4,395.10.

“The market has pretty much priced in the possibility of a Fed rate hike this afternoon. We’ve seen oil prices drop this morning. If energy prices remain a little contained, the Fed may not be overly aggressive on the tightening. It’s a little encouraging at this point that we’ve seen yields drop on the long end of the curve as well,” said Bart Melek, global head of commodity strategy at TD Securities.

Brent crude futures retreated after a two-day rally, pressured by an unexpectedly large build in U.S. crude inventories, while 10-year U.S. Treasury yields eased after hitting their highest level since 2007 in the previous session.

The U.S. central bank will announce its rate decision at 2 p.m. EDT (1800 GMT), which will be followed by a press conference by Chair Kevin Warsh.

Rising inflation stemming from higher energy prices due to the Iran conflict have prompted markets to reassess their rate expectations.

Traders are currently pricing in a 93% chance of a 25-basis-point U.S. rate hike, according to the CME Group’s FedWatch Tool. That represents a sharp shift in expectations before hostilities erupted in the Middle East, when economists widely predicted two rate cuts this year.

While gold is traditionally viewed as a hedge against inflation and geopolitical uncertainty, higher yields on risk-free Treasuries reduce the appeal of the non-yielding metal.

“Any Fed move should be seen only as a measure to give the market assurance that they’re not going to allow inflation to get out of hand. It along with the fact that the U.S. Treasury is thinking of working on the longer end of the curve to bring yields down, will be ultimately positive for gold long term,” Melek said.

Spot silver rose 1.4% to $64.55 per ounce, platinum gained 0.7% to $1,788.15, and palladium was up 1.1% at $1,303.5.