Federal Reserve Minutes Send Hawkish Signals, Gold Falls Below The 4100 Mark, Safe-Haven Aversion Loses To High-Yield US Treasuries!

Spot gold fell below the $4,100 mark, hitting its lowest level since August 5, dropping more than 2% intraday; The core variable of this round of decline comes from the interest rate market. Middle East tensions have once again pushed oil prices higher, and the impact of energy prices on the US inflation outlook has flared up once more. The yield on the US 30-year Treasury note rose to about 5.70%, near its highest level since 2002; The 10-year yield also climbed back up to 5.35%. For gold, a non-yielding asset, this means that the easing of interest rate pressures previously caused by weaker US employment data is now partially reversing.

The biggest market change on Wednesday came from energy prices. Iran has recently intensified attacks on ships in the Strait of Hormuz, and Yemen's Houthi forces continue to target Saudi Arabia. Rising energy prices are reinforcing market concerns about persistent inflation and leading investors to expect US interest rates to remain elevated for a longer period. This transmission path is putting significant pressure on gold.

Typically, escalation of military conflicts in the Middle East increases demand for safe-haven assets, but the current market also faces inflationary effects from rising energy prices. When rising oil prices push inflation expectations and long-term bond yields higher, gold faces higher opportunity costs to hold.

The long-term Treasury market is one of the most direct financial variables in this round of gold declines. The U.S. Treasury yield curve is steepening in the bear market, indicating that long-term bonds are under greater selling pressure. The dollar has also strengthened accordingly. During the session, the related indicator of the US dollar index rose about 0.3%, approaching its highest level since June this year. France's fiscal risks have flared up again, and the weakening euro has further strengthened the dollar's relative strength. As a result, gold is under pressure from both the dollar and real interest rates.

U.S. September nonfarm payroll data was weaker than expected, leading the market to significantly lower the probability of a rate hike in October. However, the market has not completely abandoned the expectation that the Fed will further tighten policy this year. Investors currently generally expect the Fed to keep rates unchanged in October, but still factor in about 85% to 86% probability that there will be another 25 basis point hike in December. 

In recent days, gold prices have shown strong resilience. Even though the yield on the US 10-year Treasury surpassed 5% and oil prices remained high, gold has not fallen below the July low for a long time, reflecting that investor positions are already low. 

Market Insight:

Wednesday's trend showed that while oil prices, the dollar, and long-term yields all rose, gold remained highly sensitive to the macro interest rate environment. The Fed meeting minutes strengthened market judgment on the probability of future rate hikes, and subsequent changes in the dollar, long-term U.S. Treasury yields, and oil price changes triggered by Middle East developments could further amplify gold price volatility.