Gold Flat as Fed Rate-Hike Bets Weigh on Precious Metals

Gold prices held steady Thursday as expectations of another Federal Reserve rate hike overshadowed support from a pullback in crude. Spot gold was down 0.1% at $4,281.98 per ounce as of 0155 GMT, while US December futures were little changed at $4,317.50.

The US central bank raised its benchmark rate by 25 basis points last week to 3.75%-4.00%, and traders are piling into bets on a second straight tightening in late October. Mounting inflation pressures and a strengthening economy appear to be pushing the Fed toward further hikes on the eve of critical national elections.

St. Louis Fed President Alberto Musalem said the central bank will likely need additional rate increases to bring down inflation driven by strong demand and a commodity price shock that has broadened beyond oil, adding that it would be better for the Fed to act sooner than wait.

Ross Maxwell, chief strategy officer at VT Markets, said investors are focused on the Fed's higher-for-longer stance, fluctuations in the US dollar and Treasury yields, and Middle East developments tied to oil and energy supply risks. "A clearer signal of another rate hike would pressure gold lower," he said.

The pressure on gold comes even as inflation hedging demand remains structurally relevant. Data showed US business activity surged to a more than five-year high in September, with S&P Global's flash US Composite PMI Output Index jumping to its highest level since July 2021. A closely watched measure of prices paid by businesses for inputs rose to a nearly four-year high, intensifying the case for tighter monetary policy.

"In our baseline scenario, we expect precious metals to lack clear direction, although volatility is likely to remain high. Gold could continue to trade for a couple of quarters near an average of $4,200 per ounce," Intesa Sanpaolo economist Daniela Corsini wrote in a note.

Oil prices edged lower as Iran signaled it remained open to diplomacy to end the US-Iran war, though the two countries remain far apart on terms. Houthi fighters also pushed to seize strategic heights in Yemen to cut off the Red Sea coast from Saudi-backed forces, following reports that President Donald Trump called off American strikes on the group at the last minute.

Meanwhile, Trump welcomed Chinese President Xi Jinping to Washington for a three-day visit where trade, technology and Tehran tensions will feature prominently.

Among other metals, spot silver fell 0.6% to $64.07 per ounce, platinum rose 0.2% to $1,754.05 and palladium lost 0.1% to $1,260.70.

Chris Weston, head of research at Pepperstone, said that while crude has come modestly off recent highs, a reversal higher that builds inflation expectations would only intensify the rates story and keep gold under pressure.