Gold prices dropped sharply on Monday, dropping below $4,200 per ounce as climbing oil prices, a stronger US dollar, and higher bond yields fueled expectations that the Federal Reserve may keep monetary policy tight.
Gold faces steepest loss since September
Spot gold declined 2.1% to $4,198.10 an ounce in early trading, while US gold futures also slid 2.1% to $4,231, marking gold’s steepest daily drop since September 1 and compounding the downward trend seen last week.
The pressure on gold followed a resurgence in oil prices, with Brent crude moving back above $106 per barrel. This move came after US President Donald Trump rejected an Iranian proposal to reopen the Strait of Hormuz and resolve ongoing conflict, stoking continued supply worries.
Trump rejected the diplomatic offer over the weekend, but further negotiations are expected.
The Federal Reserve lifted its benchmark interest rate by 25 basis points earlier this month, bringing it to a range of 3.75% to 4.00%. Futures markets indicated a roughly 68% chance of another rate hike in October as of Monday.
“Higher oil prices usually support gold as an inflation hedge, but the current environment, with elevated policy rates and bond yields, increases the opportunity cost of holding gold, which does not generate income,” reported commodity analysts tracking gold’s moves.
Bond yields and key technical levels in focus
The persistent headwinds facing bullion are particularly visible in the bond market. Yields on US 10-year Treasury notes held near 5.2% late last week, approaching their highest levels in twenty years. Long-dated bond yields also remained high, complicating the outlook for precious metals.
Barbara Lambrecht, a commodity analyst at Commerzbank, stated to Kitco News that earlier-than-expected Federal Reserve tightening has lifted both nominal and real yields, making gold less attractive to investors. She noted, however, that long-term investors in gold ETFs have so far retained their positions, helping to limit the risk of a deeper sell-off.
The $4,200 level now serves as an important technical test in the short-term. Analysts at OCBC pointed out in a client note that sustained weakness below the $4,300-$4,354 resistance zone may expose further support at $4,200, and a break could push the price down toward $4,000.
This week, traders are turning their attention to a series of key US economic reports, including job openings, the ADP employment survey, the PCE inflation gauge, and Friday’s nonfarm payrolls data. These figures are expected to influence both gold price direction and the Federal Reserve’s policy outlook.
Structural demand and meme token activity
Despite the recent selloff, structural demand for gold remains robust. The World Gold Council reported that global gold-backed ETFs attracted $18 billion in August, the second-biggest monthly inflow on record. ETF holdings rose by 121 tonnes to an all-time high of 4,189 tonnes, taking total assets under management to $615 billion.
Suki Cooper, global head of commodities research at Standard Chartered, emphasized last week that although higher US rates may keep gold volatile in the near-term, larger trends such as de-dollarisation, currency fluctuations, and global policy uncertainty are still providing underlying support.
Other precious metals joined gold in Monday’s decline, with silver dropping 3.4% to $62.08 per ounce, platinum falling 2.7% to $1,730.78, and palladium slipping 2.8% to $1,231.46.
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