Gold Eases as Oil Rally Hardens Rate-Hike Bets Ahead of Fed Call

Gold prices slipped on Tuesday, pressured by a rally in crude oil that revived inflation concerns and strengthened the case for the U.S. Federal Reserve to keep interest rates elevated.

Spot gold was down 0.3% at $4,285.91 an ounce in early Asian trade, after touching its lowest level in more than a month in the previous session. U.S. gold futures for December delivery fell 0.6% to $4,326.90.

The Fed is due to announce its policy decision on Wednesday at 2 p.m. EDT (1800 GMT), wrapping up a two-day meeting. Financial markets are widely expecting policymakers to raise the benchmark rate by a quarter of a percentage point to a 3.75%-4.00% range and to signal further tightening ahead.

Those bets were reinforced by data on Friday showing U.S. consumer prices accelerated in August, with a key measure of underlying inflation posting its largest increase in four months.

Oil prices extended gains after Yemen's Iran-aligned Houthis launched a fresh attack on Saudi Arabia on Monday, while Gulf Arab states postponed planned talks with Iran. The developments raised concerns that the Middle East conflict could widen and threaten global oil supplies, with higher energy costs capable of feeding inflationary pressures across the economy.

Gold is often sought as a hedge against inflation and geopolitical risk, but it tends to lose appeal when rates rise because higher borrowing costs increase the opportunity cost of holding non-yielding bullion.

In the bond market, benchmark 10-year Treasury yields hit the key psychological level of 5% on Monday for the first time since October 2023 — a threshold analysts say could ripple through the U.S. economy and threaten the stock market's bull run by dulling the relative appeal of U.S. equities.

Among other precious metals, spot silver fell 0.4% to $62.99, platinum lost 0.4% to $1,752.85 and palladium eased 1% to $1,279.75.