December gold futures on September 28 fell by 4% — the steepest one-day drop since June 10. Freedom analyst Vladimir Chernov links the sell-off to rising yields on U.S. Treasury bonds and expectations of further Fed rate hikes. As long as these expectations persist, gold will struggle to recover.
Why rising yields weigh on gold
When bonds are sold off, their yields rise. Investors can lock in a higher return on U.S. government bonds, while gold does not generate interest income. According to Chernov, a further increase in yields could prompt some investors to reduce their exposure to the metal.
The market already factors in the possibility of additional Fed rate hikes. Chernov cites CME FedWatch data: the probability of an increase in October is estimated at 72.5%, and in December at 60.1%. These are market expectations, which may change after the release of economic data and statements from the regulator.
What could keep gold from falling further
Chernov does not expect a prolonged price collapse. In his view, purchases by central banks and seasonal demand in India will continue to support the metal. The analyst considers the weakening of buying activity in China ahead of the holiday week a temporary factor.
In Freedom’s September commodities market review, the company maintained a neutral short-term view on gold. Analysts noted that tight monetary policy and a potential strengthening of the dollar are capping prices despite demand from investors.
A more sustainable rebound in gold, Chernov believes, is possible after signs emerge that inflation is easing. The market may then stop expecting further Fed rate hikes, and government bond yields may begin to decline.
Earlier, Freedom reported that yields on 10-year U.S. Treasuries rose to their highest level since 2007. Analysts attributed the move to strong business activity data and intensifying inflationary pressure.
This is not an individual investment recommendation.