Gold Holds Drop as Higher Oil and Hot US Data Fan Rate-Hike Bets

(Bloomberg) -- Gold held a decline as resurgent energy prices and stronger-than-expected US economic data increased bets the Federal Reserve might again raise interest rates to combat inflation.

Bullion was trading around $4,290 an ounce, after falling 1.7% the day before. Oil rose after a defiant Iranian President Masoud Pezeshkian told the United Nations his country won't allow freedom of navigation through the Strait of Hormuz while sanctions and a US blockade remain in place, underscoring the difficulty in reaching a peace deal with Washington despite efforts to revive talks this week.

He added that Iran is ready to negotiate but will not respond to threats, and while it isn't interested in building an atomic weapon, it won't give up the right to develop nuclear technology for economic reasons. This comes a day after President Donald Trump said his officials had "very good" talks with Iranian envoys on the sidelines of the UN summit.

Gold has been dictated by the Fed's rate outlook in recent weeks as investors gauge whether surging energy prices will keep inflationary pressure strong enough to prompt further increases in rates, which would likely be negative for bullion as it pays no interest. It's down around a fifth since the US-Iran war erupted in late February.

Losses in the US Treasuries market intensified on stronger-than-forecast economic data and a weak debt auction, reflecting the view that inflation is likely to remain sticky. Treasury yields across most maturities hit the highest in almost two decades, while five-year US yields moved above 5% for the first time since 2007.

US business activity rose at the fastest pace in more than five years as robust demand pushed up new orders and employment at manufacturers and service providers. The S&P Global flash US composite purchasing managers index climbed to 58.4 in September, the highest since July 2021.

Fed Governor Michael Barr said further rate increases are likely needed to return inflation to the central bank's 2% target. His comments follow a string of similar warnings from fellow policymakers in recent days that price pressures appear to be persistent. Swap markets are currently pricing in at least three hikes by April next year, an increase from earlier this week.