Gold prices remained virtually unchanged on Tuesday following a drop of more than 1% in the previous session, as escalating disruptions to Middle East oil supplies intensified expectations of a Federal Reserve interest rate hike this week.
Rising oil prices, Treasury yields, and a strengthening dollar are exerting additional pressure on the precious metal, although long-term investment demand continues to support prices.
As of 01:06 Moscow time, XAU/USD had risen 0.2% to $4,306.86 per ounce, while gold futures edged down slightly to $4,346.65. XAG/USD gained 0.3% to $63.42 per ounce, and XPT/USD remained virtually unchanged at $1,764.36. The USD Index rose to 99.60.
Oil Supply Disruptions Fuel Fed Rate Hike Expectations
Gold came under pressure again after falling more than 1% on Monday to a five-week low, as investors reassessed the impact of rising energy prices on inflation and monetary policy.
Markets are currently pricing in a roughly 92% probability of a Fed rate hike this week, as rising energy costs increase the risk of inflation remaining elevated.
Rising borrowing costs typically weigh on gold, as the precious metal does not generate interest income, making yield-bearing assets more attractive in a rising-rate environment.
Oil prices rose after Saudi Arabia shut down the East-West Pipeline following attacks last week. The disruptions threaten the supply of millions of barrels per day, as the pipeline provided a route bypassing the volatile Strait of Hormuz at a time when global markets are already facing a shortage of additional supplies.
Saudi Arabia has not disclosed how long the pipeline shutdown will last or how quickly shipments through the Strait of Hormuz can be ramped up to offset the lost volumes.
Inflationary risks have also pushed up US Treasury yields. On Monday, the yield on the 10-year US Treasury note briefly touched 5% for the first time in nearly three years, reflecting concerns about inflation as well as rising government and corporate borrowing needs.
Since the beginning of September, the metal has fallen by more than 3%—after trading above $4,600 per ounce in late August—as traders repeatedly revised their expectations regarding the Federal Reserve’s monetary policy path.
Long-term demand supports gold’s outlook
Despite short-term pressure, investors continue to anticipate a recovery in the precious metal’s price over time as it resumes its role as a safe-haven asset in portfolios.
OCBC Bank has raised its forecasts for precious metals, reflecting a higher price starting point, increased investment activity, and persistently robust structural demand.
Chay Anbu, Head of Wealth Management at OCBC, noted that gold’s strong rebound in August erased earlier losses as the macroeconomic backdrop became more favorable.
OCBC projects the gold price to reach $4,600 per ounce by December 2026, while the target price for silver is set at $69.70 per ounce. Gold remains well above the support level near $4,000 per ounce established during the previous correction, while rising investment activity and structural demand continue to support the overall market outlook.
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