Spot bullion traded around $4,021 an ounce, extending its weekly loss to approximately 3.6 per cent. US gold futures dropped 0.6 per cent to about $4,035, bringing the psychologically important $4,000 threshold into sharper focus ahead of the central bank’s October 27–28 policy meeting.
The retreat followed another difficult session on Thursday, when gold futures for October delivery settled at $4,042.80, down 2.12 per cent. The settlement marked their lowest level since early August, reflecting the growing pressure from bond yields and expectations of tighter monetary policy.
Traders largely expect the Fed to leave borrowing costs unchanged at its October meeting, while assigning a substantially greater probability to an increase in December. CME FedWatch estimates have fluctuated sharply: Thursday’s early trading indicated a 16 per cent probability of an October rise and roughly 90 per cent for December, although later market snapshots showed lower odds for both decisions.
The shifting probabilities underline uncertainty about the timing rather than the direction of the next policy adjustment. Investors are assessing whether persistent inflation, particularly from energy prices, will force policymakers to tighten monetary conditions even as they weigh the broader economic outlook.
Higher interest rates generally diminish gold’s appeal because bullion pays no interest. Rising Treasury yields increase the potential return from holding government debt, while a stronger dollar makes gold more expensive for buyers using other currencies.
Oil prices have emerged as a significant influence on the interest rate outlook. Escalating tensions around Saudi energy infrastructure have heightened concerns that prolonged supply disruptions could sustain elevated fuel costs and feed through to consumer prices.
Saudi Arabia’s energy ministry said its air defences intercepted a drone targeting Saudi Aramco’s Shaybah oilfield on Wednesday, with two people killed. The incident added to market anxiety about the security of regional energy supplies and the inflationary consequences of further disruption.
Washington also ordered some diplomatic personnel and family members to leave missions in Saudi Arabia, underscoring the security concerns surrounding the regional confrontation. The developments supported oil prices but failed to provide lasting protection for gold, despite the metal’s traditional role as a haven during geopolitical uncertainty.
The market’s immediate attention is shifting towards the Fed’s policy statement and the personal consumption expenditures price index, a closely watched measure of US inflation scheduled for release next week. The central bank uses the index in assessing progress towards its 2 per cent inflation objective.
A stronger inflation reading could reinforce expectations of a December increase, whereas softer figures might reduce the pressure for additional tightening. Traders will also examine policymakers’ language for clues about how much weight they place on energy-driven price increases compared with underlying inflation trends.
The contrast between October and December expectations matters because it suggests investors anticipate a pause before any further tightening. Futures probabilities, however, are market-implied assessments rather than commitments by the Fed, and can change substantially as economic figures and policy communications arrive.
Gold’s decline has spread across precious metals, indicating that the repricing of interest rate expectations is affecting the wider sector. Silver, which is also sensitive to industrial demand, has faced particularly pronounced selling pressure as investors reconsider the outlook for growth and borrowing costs.
Thursday’s early Asian session saw spot silver decline 1.1 per cent to $57.33 an ounce. Platinum slipped 1.1 per cent to $1,609.95, while palladium lost 0.8 per cent to $1,078.52. Those movements preceded further weakness across several contracts as the week progressed.
The eurozone’s ability to withstand higher energy prices has offered a contrasting economic signal. European Central Bank economists said on Wednesday that lower fossil fuel dependence, fiscal support and investment in artificial intelligence had helped the region cope better than expected with this year’s energy shock.
For bullion traders, the next scheduled US inflation release will provide another indication of whether the rise in energy costs is spreading into broader prices, an important distinction for officials deciding how restrictive monetary policy needs to remain.
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