Gold heads for steepest weekly fall since June as oil revives rate fears

Gold was heading for its sharpest weekly decline since June on Friday as a rise in oil prices and signs of continued resilience in the US economy revived concern that interest rates could stay high for longer. Spot bullion was quoted at $4,018.69 an ounce at 0036 GMT, down 0.1% on the day and 3.4% for the week to that point. A later market snapshot put spot gold at $4,013.34, down 0.3% for the session and 3.6% for the week, after a partial Friday rebound. The differing intraday readings tell the same broader story: gold was set for a materially weaker week and had traded at its lowest level since early August, according to one report. 12

The immediate pressure came from oil. Crude prices rose about 4% on Thursday to a five-month high after Houthi attacks in Saudi Arabia heightened fears of further disruption to energy supplies. Brent was reported at $113.17 a barrel during Thursday trading, while US crude stood at $100.60 early Friday. Higher energy prices can intensify inflation concerns, making it harder for the Federal Reserve to justify prompt easing and strengthening the case for restrictive policy to last longer. 12

That matters particularly for gold because bullion does not provide interest income. When expected policy rates and bond yields remain elevated, investors can earn more from cash and fixed-income assets, increasing the opportunity cost of holding metal. The market reaction this week showed that inflation anxiety tied to oil was being interpreted less as a reason to seek an inflation hedge and more as a reason to expect tighter monetary conditions.

US data added to that interpretation. New claims for unemployment benefits fell to near 57-year lows last week, suggesting a modest pickup in October job growth. The labour-market signal reduced the urgency of a near-term policy reversal even as market participants assessed the implications of higher fuel costs. Earlier in the week, gold had already slipped for four consecutive sessions as oil strengthened and investors looked toward the Fed’s next policy decision. 23

The Fed raised its target range to 3.75%-4.00% on September 16. Traders broadly expected no change at the October 27-28 meeting: one market measure placed the implied probability of a hike next week as low as 7%, while another report earlier in the week put it at 16%. But expectations were substantially firmer for December. Futures pricing cited on Friday indicated roughly an 80% to 81% chance of an increase at that meeting, following an earlier 90% reading reported on October 21. These are market-implied probabilities, rather than a decision or commitment by the central bank. 123

Treasury yields did not move uniformly during the selloff. The 10-year Treasury yield was 4.96% on Thursday, down from 5.13% on Wednesday as investors moved toward safer assets after declines in AI-linked stocks. Yet gold’s weekly retreat indicates that the outlook for rates, rather than a single day’s move in long-dated yields, remained the more consequential force for bullion trading. 1

The next test is next week’s release of the personal consumption expenditures price index, the Fed’s preferred inflation gauge. The Bureau of Economic Analysis lists October 29 as the release date. A reading that confirms persistent price pressure could reinforce December-hike expectations and keep gold vulnerable after this week’s drop. Conversely, evidence of easing inflation would challenge the higher-for-longer view that has driven the latest decline. 12