Gold Pressured Lower as Rising US Yields Outweigh Fading October Fed Rate Hike Bets

Gold prices came under pressure on Friday, with spot gold trading near $4,166.4488, down about 0.10% on the day, and on track for a weekly decline. U.S. inflation data released earlier came in higher than expected, but market interpretations diverged, with investors trimming hawkish bets on a Fed rate hike at the October meeting. However, persistently rising U.S. Treasury yields continued to weigh heavily on the non-yielding asset.

**Cooling Rate Hike Expectations Fail to Halt Yield Climb**

Despite some easing in market urgency for near-term Fed tightening following the inflation data, the CME FedWatch tool showed traders' probability estimate for a 25-basis-point Fed rate hike in October had plunged to about 37% from roughly 51% a day earlier. Yet the positive impact of this dovish signal was limited, as strong labor market and GDP data kept the mainstream view that this is insufficient to alter the outlook for possible further policy tightening before year-end. Adam Hetts, global head of multi-asset at Janus Henderson Investors, said the inflation report may not be enough to change the market's dominant view of another rate hike before year-end.

**Elevated US Bond Yields as Core Pressure**

The bond market's moves remained the true driver of sentiment. The 10-year U.S. Treasury yield had climbed to around 5.298% at the prior close, briefly breaking above the 5.3% level intraday, while the 30-year yield also moved higher. The continued rise in long-end yields significantly increased the opportunity cost of holding gold, thereby suppressing bullion prices. Some market views suggested investors were more focused on still-hot U.S. economic growth, which is pushing up long-term real rates and pressuring assets such as equities and gold.

**Institutions Maintain Constructive Medium-to-Long-Term Outlook**

Amid short-term volatility, some institutions remained constructive on gold's medium-to-long-term prospects. UBS believed that under the outlook of rate hike expectations and "higher for longer" rates, gold's short-term volatility could increase, but factors such as sustained central bank buying, reserve diversification demand, and geopolitical uncertainty provided medium-to-long-term support for prices. The firm viewed gold pullbacks as opportunities for investors to add positions.