Gold prices are under pressure this week as rising U.S. Treasury yields and expectations of an additional Federal Reserve rate hike reduce demand for the non‑yielding metal. Spot gold dropped as much as 4% on Monday, reaching $4,111 an ounce, its lowest level since August 5.

Higher Treasury yields raise the opportunity cost of gold

The benchmark 10‑year Treasury note touched its highest yield since June 2007, while two‑year yields, which are most sensitive to rate‑expectations, have risen sharply this month. Market participants now see roughly a 70% chance of a second consecutive Fed rate increase in October, according to Reuters data. Higher interest rates make interest‑bearing assets more attractive and increase financing costs for speculative gold positions, which traditionally weigh on the metal’s price.

Investor positioning shows waning optimism

Data from the U.S. Commodity Futures Trading Commission for the week ended September 22 indicated that money managers’ net long positions in gold fell to their lowest level since late July, when gold was trading around $4,000 an ounce. Gold‑backed exchange‑traded funds recorded modest outflows of 1.6 metric tons last week, according to the World Gold Council, though total holdings remain sizable at 4,249 tons.

Demand factors in key markets are mixed

Demand in China, the world’s top consumer of gold, softened ahead of the October 1‑7 holiday period, with local premiums over the global benchmark falling to zero by the end of last week. In India, analysts note that central‑bank buying and seasonal demand ahead of Diwali and the wedding season could provide some support. However, historically high prices are likely to limit jewellery demand among price‑sensitive buyers, especially farmers, amid a relatively weak Indian monsoon.

What the market can expect

Higher Treasury yields and the prospect of further Fed tightening suggest that gold may continue to face headwinds in the near term. Investors seeking yield may favor interest‑bearing assets, while the opportunity cost of holding gold remains elevated. Nonetheless, central‑bank purchases and seasonal demand in India could temper the decline, offering a potential floor for prices.

Overall, the combination of rising yields, strong expectations of additional rate hikes, and softened demand in major consumer markets creates a challenging environment for gold. Market participants will be watching Treasury yields and Fed policy closely for clues on the metal’s future direction.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.