Gold prices pushed higher on Friday, though the precious metal remained on track for a weekly loss. A stronger U.S. dollar, elevated Treasury yields, and shifting Federal Reserve rate-hike expectations continue to pressure bullion, while oil prices retreated on emerging diplomacy regarding the Strait of Hormuz.
Gold prices rose during Friday’s session, but the precious metal remains positioned for a weekly decline as markets monitor the greenback, soaring Treasury yields, and monetary policy signals from the Federal Reserve alongside expectations for Federal Reserve monetary policy. Spot gold increased 0.5% to $4,293.56 an ounce early in the day, while gold futures climbed 0.7% to $4,329.97 an ounce. Kitco also tracked spot gold trading near $4,300.00 an ounce, up 0.62% on the session, alongside spot silver trading near $64.760, up 1.62%.
Despite the daily bounce, the broader trajectory for bullion points downward. That decline puts gold down 2.8% for the week, heading toward its fourth weekly loss in the past five weeks.
Federal Reserve Rate Expectations and Surging Treasury Yields
Market positioning has tilted decisively toward tighter monetary policy following strong U.S. activity data, lower jobless claims, and firmer housing figures. These indicators have reinforced the view that the Fed’s recent September rate increase—its first in three years—will not mark the end of the tightening cycle.
Midweek figures indicated that the American manufacturing industry expanded at its quickest rate in 52 months during September, while the services sector experienced its most rapid growth in 59 months. Consequently, traders are pricing in a probability of a 25-basis-point rate hike increasing from 52% to 72% for the October meeting, according to the CME FedWatch Tool.
“a little further tightening may be warranted.”
President Anna Paulson, Philadelphia Federal Reserve
“another interest rate hike may be appropriate by the end of the year.”
President John Williams, New York Federal Reserve
Minneapolis Federal Reserve President Neel Kashkari noted that inflation remains far too high and that pressures have broadened beyond the initial oil shock caused by the war in Iran. St. Louis Fed President Alberto Musalem and Chicago Fed President Austan Goolsbee similarly pointed to the need for continued rate hikes to combat demand- and energy-driven inflation.
This hawkish stance has sent bond yields soaring. The 10-year U.S. Treasury note traded near its 19-year high of 5.225%, while the 30-year yield approached its highest level in more than 20 years. Because government debt pays interest while gold does not, rising yields directly undermine the relative demand for bullion.
Strait of Hormuz Diplomacy Cools Crude Oil Prices
Energy markets experienced a downward pull as diplomacy began to offset supply fears. U.S. and Iranian negotiators in New York explored a phased arrangement involving Tehran reopening the Strait of Hormuz in exchange for Washington lifting its economic blockade. While no final agreement was finalized, the discussions provided immediate relief to energy traders.
Brent crude dropped 1.3% to near $105.26 a barrel, and WTI crude fell 1.9% to near $92.78 a barrel. Lower crude prices reduce the immediate inflation impulse that supports yields and the dollar, which acts as a marginal positive for gold. Even so, ongoing Houthi attacks against Saudi Arabia continue to threaten regional supply, keeping defensive demand for bullion alive.
Meanwhile, the U.S. dollar index hovered near 101.2 after touching a two-month high, supported both by the Fed’s stance and safe-haven demand stemming from Middle East tensions. A stronger dollar makes dollar-denominated gold more expensive for holders of other currencies.
Resilient Investment Demand and ETF Outflows
Despite the severe macroeconomic headwinds, institutional and retail interest has not collapsed. Analysts at ANZ noted that gold investment demand has remained resilient despite challenging conditions, observing that there had been no material liquidation so far.
However, specific product holdings reflect ongoing capital adjustments. On Thursday, holdings in the world’s premier gold exchange-traded fund, the SPDR Gold Trust, decreased by 2.28 metric tons, lowering aggregate reserves to 1,054.56 metric tons—the lowest point recorded since September 17. Market participants continue to watch incoming economic data and central bank commentary to gauge whether bullion will test deeper structural support bases.