KEY POINTS
- Gold traded steady at around $4,165 an ounce, holding onto a 0.6% gain from the day before as calmer oil markets and lower borrowing costs relieved pressure on the US Federal Reserve.
- Oil supplies from the Middle East have bounced back to about 80% of their pre-war levels, helping push down energy prices even though tankers continue to face attacks in the Strait of Hormuz.
- Traders now believe there is less than a 20% chance that the Federal Reserve will raise interest rates at its upcoming meeting, down from 40% just a week ago.
MAIN STORY
Gold prices held onto their recent gains as increasing oil supplies from the Middle East and a drop in government bond yields reduced the pressure on the US Federal Reserve to raise interest rates this month.
Bullion traded around $4,165 an ounce following a 0.6% rise in the previous session. According to Shell Plc Chief Executive Officer Wael Sawan, oil flows from the region have recovered to roughly 80% of what they were before the conflict began, a trend confirmed by several major banks and shipping data firms.
Even with this recovery in energy markets, risks remain. Iran has increased its attacks on commercial ships passing through the Strait of Hormuz, and top oil executives warn that global reserves are running thin as the conflict with the US stretches into its eighth month. Government bond yields pulled back as oil prices stabilized, following a spike earlier in the week. At the same time, stock market investors pushed shares to all-time highs, feeling confident that businesses can weather ongoing inflation.
Federal Reserve officials have downplayed the likelihood of an immediate rate hike. Traders are now pricing in less than a 20% chance of an increase at the upcoming October meeting, a sharp drop from 40% a week ago.
Later on Wednesday, the central bank will release minutes from its September meeting where interest rates were raised for the first time in three years, giving markets a better look at future economic policy. Meanwhile, central bankers meeting in Italy this week highlighted that gold remains a crucial safe asset for countries looking to protect their reserves during uncertain times.
THE ISSUES
- Balancing recovering Middle Eastern oil shipments against ongoing security threats in key shipping lanes like the Strait of Hormuz.
- Shifting expectations for Federal Reserve monetary policy as inflation fears and bond yields begin to cool down.
WHAT’S NEXT
Markets are waiting for the release of the Federal Reserve’s September meeting minutes on Wednesday to gain clearer insights into the central bank’s next moves on interest rates.
BOTTOM LINE
Gold prices remained strong near $4,165 an ounce as recovering oil supplies and lower bond yields made investors less worried about an imminent interest rate hike by the Federal Reserve.
Bloomberg
