Gold gains as softer Fed rate expectations offset higher US yields

NEW YORK: Gold edged up on Tuesday as receding expectations of a Federal Reserve interest-rate hike this month countered pressure from a firm US dollar and elevated Treasury yields.

Spot gold rose 0.7 percent to USD4,168.89 per ounce by 1139 GMT. US gold futures for December delivery added 1 percent to USD4,196.90. “Gold trades near key support just above USD4,100, with macroeconomic headwinds from rising real yields and dollar strength continuing to weigh on investor appetite,” said Ole Hansen, head of commodity strategy at Saxo Bank.

The US dollar broadly held onto Monday’s gains, making greenback-denominated commodities more expensive for holders of other currencies. US 10-year and 30-year Treasury yields hit fresh 24-year highs on Monday.

Markets have pared bets for a Fed rate hike this month after softer-than-expected job growth in September and downward revisions to payrolls data for the previous two months.

Traders now see only a 21 percent chance of the Fed raising rates in October but are still pricing in an almost 70 percent probability of an increase in December, according to CME’s FedWatch Tool.

Higher rates increase the opportunity cost of holding non-yielding gold.

“With limited US economic data due this week, market focus will likely remain on the dollar, yields and ongoing political and fiscal turmoil in the euro zone,” Hansen said.

Investors remain on edge about rising government debt levels and widening budget deficits across parts of the euro zone, particularly in France, pushing sovereign bond yields higher.

Meanwhile, oil prices fell on Tuesday as resilient Middle Eastern crude exports and a G7 emergency stockpile release eased supply concerns.

Among other metals, silver gained 0.6 percent to USD61.4419, while platinum slipped 0.5 percent to USD1,712.01 and palladium fell 0.7 percent to USD1,164.73.