Gold surges along with US treasuries as oil price slide deepens

[LONDON] Gold rallied alongside Treasuries as a slump in oil prices helped ease concerns about inflation, following the US Federal Reserve’s first interest rate hike since 2023.

Bullion rose as much as 2.8 per cent to exceed US$4,380 an ounce, snapping a three-day drop.

Treasury yields cooled, after spiking in the wake of the Fed’s unanimous decision on Wednesday (Sep 16) to raise rates by a quarter percentage point.

The recovery in Treasuries lifted some pressure on gold, which usually performs worse when bond yields are high because it does not pay interest. 

Yields “are correcting from the overreaction” in the previous session, said Christopher Wong, a strategist at OCBC. That in turn has helped to support gold, he said, although “elevated yields and a firmer US dollar may continue to cap gold in the near term”.

Oil slid on Thursday on signs that supply disruptions in the Middle East may be set to ease, with Saudi Arabia seeking to partially restore flows along a vital pipeline.

A steady rally in crude had reinforced bets on the Fed’s September hike, weighing on gold.

While the Fed’s rate rise was expected, chairman Kevin Warsh’s rhetoric on inflation drove up market-implied expectations for at least one more increase in 2026 and as many as two more in 2027.

The Fed signalling that rates will remain higher for longer “remains a near-term headwind for the yellow metal”, Giovanni Staunovo, strategist at UBS Group, wrote in a note. 

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Still, “rising fiscal deficits, higher debt burdens, an eventual weakening of the US dollar, and our expectation that the Fed will resume easing in 2027 should support gold despite the near-term volatility”, he wrote.

Price pullbacks towards US$4,000 “offer opportunities to add exposure”, he said.

Meanwhile, investors have continued to flock to bullion via gold-backed exchange-traded funds (ETFs).

ETFs tracked by Bloomberg have seen inflows for eight consecutive days.

Demand for options on some of the largest gold-backed ETFs has been similarly strong.

The largest such fund, SPDR Gold Shares, recently saw the highest level of outstanding call options since the early weeks of 2026.

The outstanding contracts can amplify volatility in bullion, as dealers rush to hedge by buying ETFs when prices rise and selling when prices fall.

Spot gold rose 1.8 per cent to US$4,341.82 an ounce at 4.43 pm in New York. Silver climbed 3.5 per cent to US$65.21 an ounce. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index was little changed. BLOOMBERG