Gold holds steady as firm dollar, yields counter easing Fed rate hike bets

By Noel John

Oct 1 (Reuters) - Gold prices held largely steady on Thursday as pressure from a stronger dollar and elevated US Treasury yields was offset by softer-than-expected US inflation data that reduced bets on a Federal Reserve rate hike in October.

Spot gold inched 0.1% higher to $4,159.11 per ounce by 11:17 a.m. EDT (1517 GMT), while US gold futures for December delivery were up 0.1% at $4,189.30. Gold prices fell over 6% in September.

Ten-year US Treasury yields scaled their highest level in more than two decades, raising the opportunity cost of holding gold, while a stronger dollar made greenback-priced bullion more expensive for holders of other currencies. US/ USD/

Oil prices rose as well, stoking inflation fears, after China suspended oil products exports, potentially tightening fuel markets already coping with supply shortages globally. O/R

"Anything that would increase the likelihood of a Fed rate hike would certainly dent sentiment in the gold market. Any additional strong rise in energy prices or any escalation in the Middle East would also do the same," said David Meger, director of metals trading at High Ridge Futures.

Supporting bullion, data on Wednesday showed US inflation rose less than expected in August, while price pressures were revised lower for the prior month.

The data reduced the likelihood of an October rate hike, with markets now pricing in a 31% chance, down from 45% before the release and 69% a week ago.

"It's those lower rate hike expectations that have supported the precious metals markets," Meger added.

Investors now await Friday's September US nonfarm payrolls report for clues on the monetary policy outlook.

"The weaker risk appetite and lower Fed rate hike bets have assisted gold, but the short-term trend remains bearish. A retest of the $4,000 level remains on the cards, especially if tomorrow's nonfarm payrolls report surprises on the upside," Achilleas Georgolopoulos, senior market analyst at XM Trading, said in a note.

HSBC cut its average gold price forecasts for 2026 and 2027 to $4,490/oz and $4,825/oz, respectively, saying gold could face further near-term pressure but was likely nearing a bottom.

Additionally, HSBC expects central banks to resume buying in reaction to price declines, especially near or below $4,000.

Among other metals, spot silver rose 0.5% to $60.68, platinum gained 0.1% to $1,707.58, while palladium dipped 2.5% to $1,174.28.