Gold slips as dollar strengthens and yields rise, despite easing rate hike bets

Gold prices edged lower on Tuesday, caught between competing forces that left the market searching for direction. Spot gold fell 0.3 percent to $4,128.69 per ounce in early trading, while US gold futures barely moved, settling at $4,156.00. The decline reflected pressure from two familiar headwinds: a strengthening dollar that made gold more expensive for anyone holding currencies other than the greenback, and Treasury yields climbing to levels not seen in nearly a quarter-century.

The 10-year and 30-year Treasury yields both hit 24-year highs on Monday, a sign of persistent weakness in the bond market that rippled across asset classes. When yields rise, the mathematics of holding gold shift. Gold produces no interest or dividends—it simply sits. Higher yields on Treasury bonds mean investors face a real opportunity cost by choosing gold instead, making the metal less attractive on a purely financial basis. That dynamic alone would normally push prices down more sharply. But something else was happening in the market that kept losses contained.

Fed rate hike expectations had softened considerably. On Friday, the Labor Department reported that US job growth in September had slowed more dramatically than anticipated, and the government revised downward its employment figures for the two preceding months. That data suggested the economy was cooling, which in turn made it less likely the Federal Reserve would raise rates this month. Traders, watching these signals, began pricing in a smaller chance of an October increase. The probability of a December rate hike, however, remained substantial—the CME's FedWatch Tool showed traders assigning an 87 percent probability to that scenario. This mixed outlook—less hawkish in the near term, but still expecting tightening down the road—created a kind of equilibrium that prevented gold from falling harder.

Kyle Rodda, a senior financial market analyst at Capital.com, framed the situation as one where gold's fundamentals remained sound over the longer horizon, even if the immediate picture was murky. He pointed to two potential catalysts that could move prices decisively: geopolitical turmoil in the Middle East, or a significant shift in how markets were pricing US interest rate policy. Every piece of economic data released going forward, he suggested, would matter.

The economic picture itself remained complicated. US services sector activity had slowed in September, a sign of cooling demand in that crucial part of the economy. Yet domestic demand remained robust enough to strain supply chains, and a measure of the prices businesses were paying for inputs had climbed to its highest level in more than four years. That combination—slowing services activity alongside persistent inflation pressures—suggested the inflation story was far from over, with price pressures potentially lingering well into 2027.

In the geopolitical sphere, Saudi-backed Yemeni government forces had executed a rapid military advance, retaking coastal territory around the Bab el-Mandeb Strait and pushing as far as the city of Mocha. The move displaced Iran-backed Houthi forces from most of the areas they had seized just the previous month. Such shifts in regional control, particularly around one of the world's most critical shipping chokepoints, typically catch the attention of gold traders, who view the metal as a hedge against instability.

Other precious metals moved in tandem with gold's modest decline. Silver fell 0.6 percent to $60.67 per ounce, platinum dropped 0.7 percent to $1,710.08, and palladium eased 0.2 percent to $1,170.15. The synchronized weakness across the complex suggested the moves were driven by broad commodity market dynamics rather than metal-specific factors. For now, gold remained in a holding pattern—supported by long-term fundamentals and near-term rate expectations, but constrained by a strong dollar and elevated yields that made the case for holding the metal less compelling on a day-to-day basis.