Why Gold and Silver Fell as US Yields and Oil Prices Rose

Gold’s selloff on Wednesday, September 23, and Thursday, September 24, was driven less by a change in geopolitical risk than by a change in how markets priced interest rates. Stronger US activity and rising oil prices strengthened the case for further Federal Reserve tightening, while higher Treasury yields and a firmer dollar made bullion less attractive.15

What happened to precious metals?

Gold fell about 1.7% on Wednesday to roughly $4,290 an ounce. By early US trading Thursday, it was near $4,265, while silver was around $63.47, down 1.34% on the session.15 A separate market snapshot put Wednesday’s silver decline at 3.92% and platinum’s at 3.97%, though prices vary by reporting time.13

Why did yields rise?

September’s flash S&P Global US composite purchasing managers’ index rose to 58.4 from 56.0 in August, beating the 55.2 reading economists had expected. Both services and manufacturing readings increased. The unexpectedly strong activity data gave traders less reason to anticipate easier monetary policy.8

Bond-market pressure had another source: weak demand at a $70 billion five-year Treasury auction. A market report put the 10-year yield’s rise at 15.3 basis points, to 5.11%, and the five-year yield at 5.03%.10 Higher yields raise the opportunity cost of holding gold, which pays no interest. A stronger dollar adds pressure because dollar-priced metal becomes costlier for buyers using other currencies; reporting at the time linked both moves to gold’s decline.13

How did Fed expectations and oil reinforce the move?

Hawkish Fed commentary reinforced the market’s rate-hike expectations. One contemporaneous estimate put the probability of an October hike at 69.7%; another report said swaps were pricing at least three further hikes by April. Those are market expectations, not promises of future Fed decisions.91

Meanwhile, a market report placed Brent crude above $100 a barrel amid tensions involving Iran.10 Higher oil prices can support gold as a potential inflation hedge or safe haven, but they can also increase expectations of Fed tightening. In Thursday’s trading, reporting found that the latter effect—alongside elevated yields—outweighed safe-haven demand tied to the US-Iran conflict.5

The evidence supports a shared macroeconomic explanation for the metals selloff, not a precise allocation of how much each factor contributed. It also does not establish that gold has permanently lost its safe-haven appeal: in these sessions, the expected interest-rate response to inflation risk was the stronger force.510