In early Asian trading on Tuesday (October 6), spot gold was trading near $4,140 per ounce. On Monday, gold prices held steady, as pressure from a stronger dollar and elevated Treasury yields was offset by reduced market expectations for a Federal Reserve rate hike this month.

As of the close of Monday's New York session, spot gold settled at $4,140.28 per ounce, nearly flat on the day. December-delivered U.S. gold futures fell 0.1% to settle at $4,156.80 per ounce. The dollar index rose, making dollar-denominated gold more expensive for investors holding other currencies. Meanwhile, the U.S. 10-year Treasury yield climbed as high as 5.3493%, and the 30-year yield reached 5.7029%, both setting new 24-year highs. The market is currently pricing in a 22% probability of a Fed rate hike in October and an 84% probability for December. Investors are awaiting the release of the Fed's September FOMC meeting minutes on Wednesday to gauge the future direction of monetary policy.

Rate Hike Expectations Cool: October Probability Falls to 22%, December Still at 84%

Recent U.S. economic data has largely fallen short of expectations, leading the market to reduce rate hike bets. Data released last Friday showed that U.S. job growth in September slowed more than expected, and nonfarm payroll figures for the prior two months were revised downward, after which market expectations for the Fed to tighten policy this month weakened. According to the CME FedWatch Tool, traders now see a 22% chance of a Fed rate hike in October, down from about 70% last week. However, they still expect an 84% probability of a rate hike in December. The implications of this divergence for gold are complicated: the lower October probability provides some support for gold prices, but the still-high December probability means the broader policy outlook remains tilted toward tightening. The Fed raised rates last month for the first time in three years, and investors are waiting for the September FOMC meeting minutes to be released later this week, which could help assess the future path of monetary policy.

Dollar and Treasury Yields: Dollar Strengthens, 10-Year and 30-Year Yields Set New 24-Year Highs

A stronger dollar is a key factor weighing on gold. Market analyst Fawad Razaqzada said: "Gold prices may fall first in the near term before buyers step in aggressively, and that is entirely because the dollar continues to climb and yields remain elevated." The rising dollar index makes dollar-denominated metals more expensive for investors holding other currencies. The move in Treasury yields was even more noteworthy. On Monday, U.S. Treasury yields rose broadly, with 10-year and 30-year yields setting new 24-year highs, as negative sentiment that has recently gripped the bond market dominated. The benchmark 10-year Treasury yield rose 3.4 basis points to 5.311%, touching 5.3493% at one point; the 30-year Treasury yield rose 3.2 basis points to 5.662%, touching 5.7029% intraday. Both set new 24-year highs. The closely watched spread between two-year and 10-year yields stood at 48.8 basis points, having earlier reached 49.70 basis points, the steepest since August 21.

Economic Data: ISM Services Slow but Input Prices Hit Four-Year High

Economic data suggests inflation may remain stubbornly high through 2027, keeping yields at elevated levels. A report from the Institute for Supply Management showed that U.S. services activity slowed in September, but strong domestic demand strained supply chains and pushed the business input price index to its highest level in more than four years. Jim Barnes, fixed income director at Bryn Mawr Trust, said: "There is nothing in these data that is pushing Treasury yields in the opposite direction." He also said that fiscal problems in other countries continue to weigh on the U.S. Treasury market. "This is the overarching theme that has been hanging over the bond market, namely the fiscal problems facing multiple developed markets around the world. When something goes wrong somewhere, it starts to affect global bond markets, and we saw some of that today." Amid concerns over government debt problems in places such as France and inflation and oil price risks stemming from the Iran conflict, global bond markets were broadly sold off, driving yields higher.

Institutional View: Metals Focus Expects Record-High Gold Prices in 2027

Despite short-term pressure, the long-term outlook remains favored by institutions. Precious metals consultancy Metals Focus expects gold prices to set a record high in 2027 as investors seek alternatives to traditional dollar-denominated assets, and it forecasts an average price of $5,330 per ounce in 2027. This forecast is built on the long-term logic of rising investor demand for alternatives to dollar-denominated assets, contrasting with the current short-term pressure.

What to Watch Ahead

Looking ahead, investors are awaiting the release of the Fed's September FOMC meeting minutes later this week. The Fed raised rates last month for the first time in three years, and these minutes could help assess the future direction of monetary policy. In addition, investors will be watching upcoming Treasury auctions. Last month's Treasury auctions saw weak demand, exacerbating the recent bond market selloff. Molly Brooks, U.S. rates strategist at TD Securities, said: "We have seen some weak data that should have pushed bonds higher, but yields are still grinding higher. That sentiment still hangs over the market, so without much data on the calendar, the base case is that yields may continue to grind higher on sentiment alone." The implication for gold is that in an environment where yields continue rising due to market sentiment rather than data, gold's room for a rebound may remain capped.

Summary

Gold is currently caught in a tug-of-war between bulls and bears. The October rate hike probability falling to 22% provides some support for gold prices, but the December probability remains as high as 84%, and the broader policy outlook remains tilted toward tightening. A stronger dollar and 10-year and 30-year Treasury yields setting new 24-year highs are the core factors weighing on gold. ISM data showed services activity slowing but input prices hitting a four-year high, suggesting inflation may remain elevated through 2027 and further supporting yields at high levels. Institutional long-term forecasts for gold in 2027 remain relatively optimistic, but in the short term gold prices may fall first before buyers step in aggressively. The FOMC meeting minutes and subsequent inflation data will be key catalysts determining gold's short-term direction. Under pressure from a strong dollar and elevated yields, gold is likely to remain range-bound in the near term, with the $4,130 to $4,160 per ounce area becoming a key battleground between bulls and bears.

(Spot gold daily chart, source: Yihuitong)

As of 7:40 Beijing time, spot gold was quoted at $4,138.35 per ounce.