Gold rises as traders weigh oil decline before key Fed decision

Gold advanced after a two-day drop, as traders weighed a modest retreat in oil prices against bets on the near-certainty of an interest-rate hike by the Federal Reserve later Wednesday.

Bullion rose as much as 1.1% to above $4 340 an ounce. Oil fell as a rally driven by supply disruptions left gains looking overdone, easing some inflationary concerns. Still, traders are pricing in a 93% chance of the Fed hiking rates, after a hotter-than-expected inflation print last week solidified bets. Higher borrowing costs are typically negative for gold, which doesn’t pay interest.

The 10-year US Treasury yield eased after rising to the highest level in almost two decades, the latest milestone in a bruising global bond selloff driven by booming capital investment and recent soaring energy prices that exacerbated inflation. The 2-year US Treasury yield, which is sensitive to near-term policy decisions, also edged lower, lifting some pressure on bullion.

Investor expectations are that the central bank will raise interest rates for the first time since 2023. If it doesn’t, or if Fed Chairman Kevin Warsh is non-committalabout additional increases, traders may demand even higher yields on long-term bonds to safeguard their investments against the risk of inflation remaining elevated.

“With markets already pricing a high chance of a Fed hike this week, the main uncertainty is less about the hike itself, and more about what comes after,” said Christopher Wong, a strategist at Oversea-Chinese Banking Corp. “If the Fed keeps the door open to further tightening, gold may be more vulnerable,” and move lower toward $4,000 an ounce if key support at $4,250 is broken, he added.

Oil declined after a two-day gain, even as the duration of Saudi Arabia’s East-West pipeline shutdown after attacks last week remains unclear. The route had allowed millions of barrels a day to avoid passing through the Strait of Hormuz, and Saudi Aramco is now delaying deliveries to some European customers.

Gold is down around 3% in September, after trading above $4,700 an ounce in late August, as traders repeatedly recalibrate the outlook for Fed policy. Still, many investors are betting that bullion will regain momentum once it rediscovers its traditional value as a portfolio hedge.

Spot gold rose 0.8% to $4 326.57 an ounce at 12:25 p.m. in Singapore. Silver was up 1.5% at $64.60 an ounce. Platinum and palladium were also higher. The Bloomberg Dollar Spot Index, a gauge of the US currency, was little changed after gaining 0.6% in the past two sessions.