Gold prices fell on Tuesday as higher oil prices and government bond yields coincided with increased market expectations for another Federal Reserve interest rate increase.
At 04:46 ET (08:46 GMT), XAU/USD was down 1.6% at $4,377.84 an ounce, while gold futures declined 1.2% to $4,426.26. XAG/USD fell 2.4% to $64.98 an ounce and XPT/USD declined 1.2% to $1,774.70.
The U.S. Dollar Index gained 0.2% to 99.59.
Markets raise expectations for September Fed rate increase
Gold has declined by approximately $320 from last week’s high near $4,697, with oil prices and government bond yields also moving higher.
The metal had fallen more than 3% on Friday after Federal Reserve Chair Kevin Warsh indicated a continued focus on returning inflation to the central bank’s 2% target.
According to CME FedWatch, markets were pricing approximately a 66% probability of a 25-basis-point rate increase at the Federal Reserve’s September meeting, compared with around 40% before Warsh’s Jackson Hole speech.
Energy prices have also increased following renewed military exchanges between the United States and Iran. Brent crude moved above $91 per barrel, while U.S. crude traded above $86 as markets assessed the potential for disruption to energy supplies.
The 10-year U.S. Treasury yield rose to approximately 4.78%, its highest level since early 2025, alongside higher government bond yields across other major markets.
Tony Sycamore, senior market analyst at IG, attributed the roughly $300 decline from last week’s peak to the combination of Warsh’s more hawkish Jackson Hole comments and renewed tensions surrounding the Strait of Hormuz.
Sycamore said higher oil prices and bond yields had created additional pressure for gold ahead of the Federal Reserve’s next meeting. He estimated that markets were pricing approximately 60 basis points of interest rate increases through June 2027.
Gold retains gains recorded during August
Despite the recent decline, gold remains higher following a gain of nearly 10% during August, when the U.S. Treasury unexpectedly increased purchases of longer-dated government debt.
The Treasury purchases lowered borrowing costs and weakened the dollar, while concerns about U.S. government debt and potential currency devaluation also remained among the factors influencing demand for gold.
The so-called debasement trade contributed to gold’s approximately 65% increase during 2025 as investors sought exposure to assets viewed as potential hedges against government deficits and weaker currencies.
Gold-backed exchange-traded funds recorded inflows, while purchases by central banks provided another source of demand.
U.S. labour data in focus ahead of Fed meeting
Gold remained below its 200-day moving average of approximately $4,526 after falling beneath that level following Warsh’s speech.
Sycamore said the move had not altered his medium-term assessment that gold established a base around the late-June low near $3,942. He continues to favour buying declines and has a longer-term upside target of $5,000.
Investors will monitor job openings, the ADP employment report and Friday’s nonfarm payrolls for further information on U.S. labour market conditions and the potential path of Federal Reserve interest rates.