Gold prices stabilized after rising on Tuesday, as traders weighed a decline in oil prices, which eased concerns about energy-driven inflation, against the continued high yields on U.S. Treasury bonds.
The price of the precious metal hovered around $4,195 an ounce, after rising 1.6% the previous day. Oil prices stabilized after a decline, amid signs that supplies from the Middle East had risen to near pre-war levels, following Saudi Arabia's boosting of flows through a major pipeline.
These factors offset the impact of the stalemate over the Strait of Hormuz, which had driven up fuel prices earlier in the week. Nevertheless, Brent crude remains up about 70% this year as the conflict approaches its eighth month.
Gold remains under pressure from other factors. The yield on the longest-term U.S. Treasury note rose for the sixth consecutive day on Tuesday to its highest level since 2002, amid concerns that rising energy costs will lead to further interest rate hikes. Higher yields typically put downward pressure on gold, which does not offer a yield.
Federal Reserve officials warned that monetary policy tightening is still needed even after they raised interest rates mid-month for the first time since 2023.
New York Federal Reserve President John Williams said on Tuesday that another rate hike later this year might be appropriate, prompting investors to reduce the probability of a rate increase at the Fed's next meeting in late October, just before the U.S. midterm elections, to less than 50% from 70%.
Inflation and interest rates continue to put pressure on gold.
Williams said that the conflict in the Middle East and the expansion of artificial intelligence remain the main drivers of rising inflation, while three other Federal Reserve officials indicated a rate hike at separate events on the same day.
Gold is on track to end September down more than 5%, with energy costs weighing on prices more broadly.
The U.S. personal consumption expenditures data, the Federal Reserve's preferred inflation gauge, is due later on Wednesday, along with the non-farm payrolls data on Friday. These are the next two economic indicators that will be closely watched for clues about the path of interest rates.
However, holdings in exchange-traded funds (ETFs) backed by the precious metal continued to rise, adding about 63 tons this month.
Analysts at Macquarie Group wrote in a note that long-term investors, along with central bank purchases, are offsetting the impact of some macroeconomic factors that are weighing on prices, leaving gold without a catalyst to set a clear direction.
Spot gold rose 0.3% to $4,195.23 an ounce at 3:18 p.m. Singapore time, while silver fell 0.2% to $61.38 an ounce.
Platinum and palladium also rose, while the Bloomberg spot dollar index, a measure of the US currency, fell by 0.2%.
