Gold Slips Ahead of Fed Rate Decision as Odds of Hike Reach 92%

Gold weakened ahead of the Federal Reserve's interest-rate decision as higher oil prices and rising Treasury yields fueled concern over tighter monetary policy, with spot bullion trading in the $4,280-an-ounce range.

Bloomberg reported that spot gold fell 0.2% from the previous session to $4,284.99 an ounce as of 8:45 a.m. Singapore time on September 16. Bullion, after falling for two straight sessions, was hovering around $4,290 an ounce.

Persistently high oil prices have revived inflation concerns. As US Treasury yields climbed, markets priced in a 92% chance that the Fed would raise interest rates later on September 16. Higher rates typically reduce gold's appeal because the metal does not pay interest.

The yield on the 10-year US Treasury rose as high as 5.04% in the previous session, the highest level since 2007 and close to a two-decade peak. A surge in energy prices and funding demand tied to large capital investment is weighing on global bond markets.

Christopher Wong, a strategist at OCBC, said the main uncertainty is not the rate increase itself but what follows, since markets have already heavily priced in a Fed hike this week. He added that gold could face steeper downside pressure if the Fed leaves the door open to further tightening. A break below support at $4,250 an ounce could send prices down to $4,000.

Oil prices are also seen as a key variable for gold. The timing for restoring Saudi Arabia's East-West crude pipeline, which was shut after last week's attack, remains unclear. Saudi Aramco is also delaying crude supplies to some European customers.

Gold traded above $4,700 an ounce at the end of last month, but has fallen more than 3% in September as the outlook for Fed policy has been repeatedly revised. At the same time, silver was little changed at $63.68 an ounce, while platinum fell 0.2% and palladium rose 0.1%.