Gold Plunges 4% as Treasury Yields Surge and Fed Rate Hike Bets Rise

Gold prices tumbled nearly 4% on Monday as surging U.S. Treasury yields, a stronger dollar, rising oil prices and growing expectations for additional Federal Reserve interest rate hikes pressured precious metals.

Spot gold fell 3.9% to $4,116.60 per ounce by 16:47 ET, while U.S. gold futures dropped 4.1% to $4,145.76.

The selloff came as U.S. borrowing costs extended their sharp climb. The benchmark 10-year Treasury yield rose 5.4 basis points to 5.241%, reaching its highest level since June 2007. The 30-year yield advanced 4.9 basis points to 5.551%, after ending last week around levels not seen since June 2004.

Expectations for tighter Federal Reserve monetary policy have also intensified. The Fed raised interest rates nearly two weeks ago for the first time in more than three years and indicated that further tightening could follow. Strong U.S. business activity and elevated oil prices have since reinforced those expectations.

According to the CME FedWatch tool, markets priced in a 70% probability of another 25-basis-point rate hike in October, compared with 64% a day earlier and more than 57% a week ago.

Higher interest rates typically create headwinds for non-yielding assets such as gold while supporting the U.S. dollar, making bullion more expensive for buyers using other currencies.

Investors are now awaiting several major U.S. economic reports for clues about the Fed's next move. August job openings data is due Tuesday, followed by the personal consumption expenditures price index, the Fed's preferred inflation gauge, on Wednesday. September nonfarm payrolls are scheduled for Friday.

Oil prices added to inflation concerns after U.S.-Iran tensions reduced hopes for an immediate reopening of the Strait of Hormuz. President Donald Trump said Saturday that he rejected an Iranian proposal to reopen the key shipping route under Tehran's conditions.

Reports that Washington could ease sanctions and release frozen Iranian assets in exchange for progress on Iran's nuclear program later trimmed crude's gains. Brent crude was still up 1.8% at $106.15 per barrel, maintaining inflationary pressure across global markets.